Each video in the web course may have several parts.
For instance: 10-1 Part-1 and 10-1 Part-2.
10-2 Part 1, 10-2 Part 2, 10-2 Part 3 and 10-2 Part 4.
To view each part, click the three horizontal lines in the top left hand corner of the video.
- 0. Introduction
- 9. Parity and Other Option Relationships
- 10. Binomial Option Pricing I
- 11. Binomial Option Pricing II
- 12. The Black-Scholes Formula
- 13. Market-Making and Delta-Hedging
- 14. Exotic Options I
- 18. The Lognormal Distribution
- 19. Monte Carlo Valuation
- 20. Brownian Motion and Ito's Lemma
- 21. The Black-Scholes Differential Equation
- 22. Exotic Options II
- 23. Volatility
- 24. Interest Rate Models
- Appendices
- Webcast Errata
The following web course, Models for Financial Economics, was originally developed in 2009 for ACTEX Learning (New Hartford, CT) to be used as part of an online course and in a webcast offered to prepare students taking SOA Exam MFE/CAS Exam 3F, where SOA and CAS designate the Society of Actuaries and Casualty Actuarial Society, respectively. The content of this exam has continued to evolve since that time, so this web course will no longer be complete for this purpose, but nonetheless will provide students of quantitative finance an introduction to much of the material in Robert McDonald’s book, Derivatives Markets (Pearson, 2nd Ed.). The videographer and editor for this web course was David Desrocher (Emerger Media, Hartford, CT).
Several errata have been found in these videos by me and my former students, and are posted below. In addition, I invite viewers to communicate with me through this website if they discover others.
Webcast Errata
- Chapter 9-Module 1-Part 1-Slide 18:
In the discussion of slide 9-18, I actually said “a long forward is the obligation to sell,” and if it were not recorded for all to hear, I am certain I would not have believed that I could have made such a “speako,” which is my term for an oral typo. Of course, a long forward is an obligation to buy.
- Chapter 9-Module 4-Parts 4/5-Slides 55/56:
In Part 5 I discovered a typo in the inequality sign in McDonald’s put convexity slide 56 and corrected that in the video, but didn’t notice a different typo in the call convexity slide 55. Here the subtractions in the numerators of both “slopes” for the call inequality are switched. So on the left hand side, the numerator is written C(K1)-C(K2) when it should have been C(K2)-C(K1), with the same problem on the right hand side. As both ratios are slope formulas, the conclusion for puts and calls is that the slope increases as you move from left to right.
- Chapter 10- Module 2-Part 4-Slide 37:
Although I state the formula correctly, that the slope of the graphed line equals the ratio of the “rise” of Cu-Cd over the “run” of Su-Sd, in the formula I then wrote, I used u-d in the denominator.
- Chapter 10-Module 7-Part 3-Slides 80/81:
The problem was stated with a time-step of 2 months, which is one-sixth of a year and thus h=0.167, and not h=0.125 as I expressed. Also, the difference between the US and foreign risk free rates (0.055-0.031) is 0.024 not 0.019.