CS522 Computational Finance

Spring 2005

Announcements (archive):

  • [05/19/05] The course staff thanks you for your hard work and wishes you all the best. To those of you who are coming back: enjoy your break. To those of you who are leaving Cornell: good luck in your new careers!
  • [05/19/05 6.40 am] Final grades have been posted on CMS.
  • [05/17/05] The graded final will be available for examination, and the last homework will be available for pickup in Radu's office in 334 Upson Hall on Thursday, May 19, from 10 to 12. Should you have any questions that you can not resolve with Radu, Tibor will be available in his office (4132 Upson Hall) during this period of time.


Tuesdays and Thursdays, in Thurston 205, 1:25 - 2:40.

Course Materials

Follow this link to access course materials (lecture notes, trading data, other documentation).

This is a link with restricted access, and you will need a user name and password to get in. We gave these out in class, if you were not there, please send email to Radu. To establish the secure connection, the web server will provide your browser with a "certificate" - you must accept it before you can proceed. If you get a warning from your browser on this certificate, you can safely ignore it.

Teaching Staff and Contact Info

Email Phone Office Office hours
Tibor Janosi janosi@cs.cornell.edu 255-4029 4152 Upson Thursday, 3:00-4:00 pm
(or by appointment)
Radu Popovici (TA) pradu@cs.cornell.edu 255-911 334 Upson Monday, 3:00-4:00 pm
Wednesday, 5:30-6:30 pm

Important note: The doors to the top two floors of Upson Hall are locked at 5 pm. Please plan for this if you want to attend office hours after 5 pm. Feel free to call the person you want to meet in their office and ask them to open the door for you.


There is no assigned textbook for the course; material will be drawn from many sources. Keep good class notes!

Two books that you will find useful are:


Homework will be made available and must be submitted through CMS. Instructions on how to log in and how to submit work are available here.

Brief Overview

In this course we will explore techniques that allow for the valuation of various financial intruments. Specifically, we will study how binomial models, partial differential equations, Monte Carlo methods, and spline approximations can be used to solve important practical problems in Finance. The practical application of the notions discussed in class will be emphasised, and the impact of trade-offs imposed by real-life applications will be examined. Homeworks will occasionally involve the manipulation of large volumes of real trading data.

Broadly speaking, the course will consist of three big parts. In the first part, we will explore issues related to the time value of money, focusing on non-parametric smoothing of forward rate curves based on Treasury bond data. In the second part we will discuss the valuation of options, and we will introduce stochastic differential equations, the Black-Scholes formula, binomial pricing techniques, partial differential equations, and Monte Carlo techniques. In the third part we will explicitly model the evolution of interest rates, and we will extend our pde and Monte Carlo methods to handle the valuation of derivatives. In this part we will also introduce HJM models.

Most programming will be done in Matlab. Knowledge of scripting languages, text file manipulation utilities, and simple database notions will be useful.

Matlab and Other Useful Links