CS522: Course Materials

Lecture Notes

• Treasuries: Characteristics, Markets, Databases, Smoothing
• Treasuries handout
• Forward Rate Curve Models
• Non-Linear Optimization
• MATLAB array manipulation tips and tricks
• Options
• Options (2)
• Computing Option Values
• Data Issues in Computational Finance
• Constructing the Lattice
• Constructing the Lattice (2)
• Overview of Lattice Construction. Applications.
• Midterm sample problems
• Numerical Methods for Differential Equations
• Black-Scholes formulas
• American Options
• Exotic and Path-Dependent Options
• Sample Final

Assignments

• Homework 2:
  
  1. CRSP data field names
  2. CRSP Master Treasury File
  3. CRSP Cross-Sectional Treasury File
  4. GovPX data field names
  5. GovPX trade data (zipped size: 12 MB, unzipped size: 62 MB)
     For those of you who do not have enough disk quotas, we provide the GovPX split up for each of the following days: June 1, 2, 3, 4, 7, 8, 9.
• Homework 2 FAQ and Tips
• Partial solution to assignment 2 (see the hints above as well):
  1. Model function for Svensson
  2. Left-hand-side of the system of providing all parameter values for smoothest forward rate curves.
  3. Right-hand-side of the system of providing all parameter values for smoothest forward rate curves.
  Note: The system of equations is set up for curves whose "zero" is at the left end of each interval. In other words, if we are examining the piece of curve on interval [t_i, t_i+1], then the curve's time variable changes from 0 to t_i+1-t_i. As explained in class, this way the left-hand-side has more zeros. The solution for curves based at t = 0 (at the origin of time) is analogous.

• Homework 3
• Homework 3 Tips: Drawing Lattices. Handle Graphics.
• Homework 3 Tips: AVI movie illustrating the order of evaluation of nodes in a recombining lattice.
  The program generating this movie has 32 lines (not counting end statements that close for loops).
• Homework 4