MATH 490/583 (An Introduction to Stochastic Calculus), Fall 2010, Neill 3W, Tu 4:00-5:15pm, Th 2:50-4:05pm


Instructor: Haijun Li (office hour: Neill 217, Wed 9:00-12:00am)


Modeling with the Ito integral or stochastic differential equations has become increasingly important in various fields (physics, biology, chemistry, various engineerings, finance and insurance,...). This course presents an elementary introduction to Ito Calculus, without burdening the students with a great deal of measure theory and functional analysis. Examples and applications are mainly taken from finance and insurance for general interests.

Prerequisites: A probability course.
Topics: Brownian motion, martingales, Ito integrals, Ito Lemma, stochastic differential equations and their numerical solutions, Black-Scholes model, Girsanov's theorem, fundamental theorem of arbitrage-free pricing, interest rate models, bond option pricing.

Text: (1) Elementary Stochastic Calculus, by Thomas Mikosch, World Scientific 2002; (2) Introductory Stochastic Analysis for Finance and Insurance, by Sheldon Lin, Wiley 2006.

The lecture notes condensed without proof details:

Week1

Week2

Week3-4

Week5

Week6

Week7

Week8

Week9

Week10

Week11

Week12-13

Week14

Final week: Final project presentations.



Academic Integrity:  Please note that we take extremely seriously the university’s policy on the need for academic honesty in all your work.  Any form of dishonesty in an assignment will lead to a zero on an assignment and we reserve the right to give a grade of F for the course as well.  If needed, Student Conduct will be contacted.  Visit the following site for more information regarding what constitutes academic dishonesty and the WSU procedures for handling cases of academic dishonesty. http://www.conduct.wsu.edu/default.asp?PageID=343

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 Students with Disabilities: Reasonable accommodations are available for students with a documented disability. If you have a disability and may need accommodations to fully participate in this class, please visit the Disability Resource Center (DRC). All accommodations MUST be approved through the DRC (Admin Annex Bldg, Room 205). Please stop by or call 509-335-3417 to make an appointment with a disability specialist.


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