This course treats applications of risk-neutral pricing, especially the theory of interest-rate term structure models. The underlying methodology is change of measure. Both risk-neutral and forward measures are used. Models covered include Ho-Lee, Hull-White, Cox-Ingersoll-Ross, and
Heath-Jarrow-Morton. Other topics are forwards and futures,
models for foreign exchange, and options that permit early exercise. Texts: S. Shreve, Stochastic Calculus for
Finance II: > Continuous-Time Models, Springer-Verlag, 2004.
Prerequisite: Stochastic Calculus for Finance I 46-944.
Lecture: 100min/wk and Recitation: 50min/wk