Academic Catalog

IAM614 METHODS OF COMPUTATIONAL FINANCE

Course Code: 9700614
METU Credit (Theoretical-Laboratory hours/week): 3(0-0)
ECTS Credit: 8.0
Department: Institute Of Applied Mathematics
Language of Instruction: English
Level of Study: Graduate
Course Coordinator:
Offered Semester: Spring Semesters.

Course Content

Numerical Methods for Discrete Time Models: binomial method for options; discrete time optimal control problems. Reminders on Continuous Models: Ito process and its applications in stock market, Black-Scholes equation and its solution; Hedging, Volatility smile. Monte Carlo Method for Options: generating random numbers, transformation of random variables and generating normal variates; Monte Carlo integration; pricing by Monte Carlo integration; variance reduction techniques, quasi-random numbers and quasi-Monte Carlo method. Finite Difference Methods for Options: explicit and implicit finite difference schemes, Crank-Nicolson method; Free-Boundary Problems for American options. Finite Difference Methods for Control Problems: Markov Chain approximation method, elliptic Hamiltion-Jacobi-Bellman equations, computational methods.