MGTF 411 STOCHASTIC CALCULUS & CONTINUOUS-TIME FINANCE

MFin
SP17

Professor Jun Liu

Email: junliu@ucsd.edu
Phone: 858-534-2022
Office Hours: 4S148

Teaching Assistant:
TA Email:
Faculty Assistant: Rosangela Assenti

DESCRIPTION

Stochastic calculus is an important tool for finance professionals. Most asset

pricing models with closed-form solutions are continuous-time models. This
course covers the basic subjects in stochastic calculus and continuous-time
finance, including Brownian motions, stochastic differential equations, opti-
mal portfolio/consumption choice, Black-Scholes option pricing, term structure
modelling, and applications to corporate finance.

The objective is to introduce to students important insigts and techniques

of modern asset pricing.

Listed below is a tentative schedule. It is subject to change.

OBJECTIVES

1. Students will understand fundaments concepts in continuous time finance

models.
2. Students will demonstrate the ability to solve continuous-time models.

MATERIALS

Recommended

1. Darrell Duffie, Dynamic Asset Pricing Theory. Princeton University Press, Third
Edition, 2001
2. Steven Shreve, Stochastic Calculus for Finance II, Continuous-Time Models,
Springer.
TENTATIVE COURSE SCHEDULE

Week 1: One-Period Models

Week 2: Brownian Motions
Week 3: Stochastic Differential Equations
Week 4: The Black-Scholes Model
Week 5: State Price and Equivalent Martingale Measure
Week 6: Term Structure Models
Week 7: Derivative Pricing
Week 8: American Option
Week 9: Portfolio and Consumption Choice
Week 10: Corporate Finance Applications

GRADING POLICY

Grading policy: 30% Homework + Projects, 30% Midterm, 40% Final.

ACADEMIC INTEGRITY

Integrity of scholarship is essential for an academic community. As members of the

Rady School, we pledge ourselves to uphold the highest ethical standards. The
University expects that both faculty and students will honor this principle and in so doing
protect the validity of University intellectual work. For students, this means that all
academic work will be done by the individual to whom it is assigned, without
unauthorized aid of any kind.

The complete UCSD Policy on Integrity of Scholarship can be viewed at:

http://senate.ucsd.edu/manual/appendices/appendix2.pdf

How the Honor Code applies to this course:

[List how the Honor Code applies to your course.]

STUDENTS WITH DISABILITIES

A student who has a disability or special need and requires an accommodation in order
to have equal access to the classroom must register with the Office for Students with
Disabilities (OSD). The OSD will determine what accommodations may be made and
provide the necessary documentation to present to the faculty member.
The student must present the OSD letter of certification and OSD accommodation
recommendation to the appropriate faculty member in order to initiate the request for
accommodation in classes, examinations, or other academic program activities. No
accommodations can be implemented retroactively.

Please visit the OSD website for further information or contact the Office for Students
with Disabilities at (858) 534-4382 or fosorio@ucsd.edu.