Spring 2008 MBA Course

B8835-001: Security Pricing: Models & Computation

MW - Full Term, 10:45AM to 12:15PM

Location: WJW 209

Instructor: Mark Broadie

Download Syllabus

View textbook info

View course evaluation

Modern financial markets are marked by the widespread prevalence of new financial products, the importance of risk management, and the availability of powerful computational technology. In this class, we develop financial models and computational methods to solve pricing, hedging, and portfolio optimization problems that appear everyday in financial markets. The emphasis is on a practical approach: we apply models and methods in a hands-on fashion to real problems, and simultaneously highlight their limitations in real situations. We develop techniques to price a wide array of equity derivatives, including path-dependent options and multi-asset options. We explore the related problems of hedging and risk management, and we address issues that arise in short and long term portfolio optimization. We construct models for the evolution of interest rates, to allow for the pricing and hedging of interest rate derivatives. Finally, we discuss models for credit sensitive securities.

View video introduction

This course assumes a working knowledge of statistics (at the level of the B6014 Statistics course) and optimization and simulation (at the level of the B6015 Decision Models course). Students must also be familiar with basic options concepts (at the level of the B8311 Options Markets course) and fixed income concepts (at the level of the B8308 Debt Markets course). Students must also be proficient in Excel, the use of the Solver (Excel’s built-in optimizer), and Crystal Ball for spreadsheet simulation. This course is intended to be complementary to the B8312 Advanced Derivatives course.
A good review for the course would be to read or reread chapters 1–12 of Hull’s textbook: • J. C. Hull, Options, Futures, and Other Derivatives, 6th Edition. Prentice Hall, 2005. Non-MBA students must be able to program in Visual Basic in order to complete the homework assignments and final exam. For links to free VBA books, use the Columbia Library Books 24x7:
http://www.columbia.edu/cu/lweb/eresources/databases/3262539.html
Follow this link, click “Connect” and login with your UNI. Then, select “View by: IT and Technical Topics”, then “Programming Languages”, and then “Visual Basic”. Alternatively, a very good book on VBA is: • S. C. Albright, VBA for Modelers: Developing Decision Support Systems Using Microsoft Excel, 2nd Edition. South-Western College Publishers, 2006.



Mark Broadie

Vice Dean for Curriculum and InstructionProfessor Broadie currently teaches the elective courses Security Pricing: Models and Computation, Computational Finance, and Programming for Business Research. He is an Academic Advisory Board Member for the Program for Financial Studies. His research interests include the pricing of derivative securities, risk management and, more generally, quantitative methods for decision-making under uncertainty. Broadie is the financial engineering area editor of Operations Research and...

View full profile

Personal Website