Numerical Methods for Finance
Learn the fundamental numerical techniques that are essential for quantitative roles in finance. Gain experience applying these techniques to practical problems including option pricing and credit risk modelling.
This course is a component of the Quantitative Methods for Finance Professional Certificate.
Prerequisite knowledge:
- Intermediate MS Excel skills
- Basic calculus
- Basic probablility
- Basic VBA programming
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Module 1: Monte Carlo Methods
- Random number generation
- Application: Simulating Brownian motion
- Application: Pricing European options by simulation
- Simulating correlated random numbers
- Application: Simulating correlated default times
- Techniques for accelerating convergence
Module 2: Lattice Techniques
- Fitting a binomial tree to an asset price process
- Application: Pricing an American put on a binomial tree
- Application: Pricing options on dividned paying securities
- Trinomial tree models
Module 3: Finite Difference Techniques
- Approximating first and second derivatives by finite differences
- Explicit finite difference technique for derivatives pricing
- Application: Pricing options
- Overview of more robust approaches: Implicit and Crank-Nicolson