21-681 Stochastic Calculus in Finance

6 units, Carnegie Mellon University

This is a graduatelevel introduction to continuoustime equilibrium asset pricing models. Using tools from Ito calculus, the first part of the course covers the benchmark case of complete, frictionless markets, for which a fairly general theory and a number of solvable examples have been developed. The second part of the course then provides an overview of cuttingedge research on extensions of the baseline model that account for flaws and frictions such as heterogeneous beliefs, trading costs, or asymmetric information. In the third part of the course, students will present a related research paper, chosen together with the instructor in accordance with their background and research interests. One 80 minute lecture

Prerequisites: (21-355 (min B) or 21-235 (min B) or 21-455 (min B)) and (21-373 (min B) or 21-237 (min B))

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