INE524 Advanced Financial Engineering

[3–0, 3 cr.]

Review of basic mathematics, including renewal theory and stochastic calculus. Martingale approach to Black-Scholes formula. Optimal stopping and American options. Pricing of continuous and discrete exotic options. Term structure models and pricing of bond options. Jump diffusion models. Applications, including pricing of real and electricity options and hedging of real options. Prerequisites: INE507 Advanced Stochastic Processes and INE 523 Financial Engineering