Monte Carlo Methods Course | Education. Online. Free.

| iversity

onte Carlo Methods in

M
Finance
Summary
Learn how to measure the risk of an investment
portfolio!
In this course you will simulate the time evolution of prices of financial assets,
use the Black-Scholes model to price European or Asian options and compute
the Value-at-Risk of a portfolio. The approach is hands-on with a strong
emphasis on practical simulations that you will program, run and explore in your
own computer.
"Monte Carlo Methods in Finance" will be offered on iversity from 20 January,
2014 until 16 April, 2014.

Course Structure

rof. Dr.
P
Alberto
Surez

The course is structured in 9 chapters

Chapter 1: Introduction [2014/01/20 - 2014/01/29]
Chapter 2: Understanding
random numbers [2014/01/30 - 2014/02/05]
Chapter 3: Generating random
numbers [2014/02/06 - 2014/02/12]
Chapter 4: Brownian motion [2014/02/13 2014/02/26]
Chapter 5: Ordinary differential equations [2014/02/27 2014/03/05]
Chapter 6: Stochastic differential equations [2014/03/06 -

Associate professor,
Computer Science
Department,
Universidad
Autnoma de Madrid

2014/03/12]
Chapter 7: Pricing of simple derivative products [2014/03/13 -

After studying

2014/03/26]
Chapter 8: Pricing of more complex derivative products

Chemistry at the

[2014/03/27 - 2014/04/02]
Chapter 9: Modeling and quantifying financial risk

Universidad

[2014/04/03 - 2014/04/16]

Autnoma de

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Monte Carlo Methods Course | Education. Online. Free. | iversity

Chapters are divided into units. Each unit consists of a video followed by a quiz.
At the end of each chapter you will solve and turn in some homework exercises.
In these exercises you will explore additional material on your own and then
respond to questions in multiple choice format.

Madrid, he received
a Ph.D. degree in
Physical Chemistry
from the
Massachusetts

Some of the explanations in the videos and the exercises make reference to

Institute of

short programs that you can download and execute in your own computer. You

Technology (MIT) in

are encouraged to experiment with these programs (modify the values of

Cambridge and held

parameters, complete or rewrite the code to alter the model or to implement

postdoctoral

related functionality) and run your own simulations. The code provided can be

positions at Stanford

executed in either GNU Octave or MATLAB.

University, at the

Certifcation

Universit Libre de

You will receive a certificate of participation after completing the course

Katholieke

assignments (videos, quizzes and homework).

Universiteit Leuven.

Learning objectives

Other appointments

Bruxelles and at the

at the International
At the end of this course you will know how to answer the following questions:
1. Why are random numbers needed in quantitative finance? And, if they are

Computer Science
Institute at the

random, how can they be used to give precise, accurate answers to

University of

quantitative financial problems?

California, Berkeley,

2. What is the Black-Scholes model?

and the MIT

3. What is geometric brownian motion and how can it be used to simulate the

followed.

evolution of asset prices in financial markets?

4. How are Monte Carlo methods used to determine the right price of a
derivative product, such as a European call option?
5. What is the theory of copulas and how can it be used to model general
dependencies among financial assets?
6. How is financial risk modeled, characterized and quantified?

Workload
You will need between 5 and 8 hours of work per week during a total of 12
weeks to complete all the learning activities, including the homework.

Prior knowledge
The course is geared to students not only in economics and finance, but also in
mathematics, computer science, engineering, physics and the natural sciences.

He has worked on
relaxation theory in
condensed media,
stochastic and
thermodynamic
theories of
nonequilibrium
systems, lattice-gas
automata, and
automatic induction
from data. His
current research
interests include
machine learning,

No knowledge of finance is required.

quantitative and

Basic knowledge of Calculus (integration and differentiation, Taylor series),

computational

Linear Algebra (matrices, determinants, eigenvalues and eigenvectors) and

finance, time series

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Monte Carlo Methods Course | Education. Online. Free. | iversity

Probability (random variables, probability density and cumulative distribution

analysis and

functions) at an introductory undergraduate level is strongly recommended.

information
processing in the

Programming knowledge is recommended. We will be designing simulations that

presence of noise.

can be executed in either GNU Octave or in Matlab. The programs will be short,
intuitive, fully documented and easy to follow. Yet they will be powerful tools
under your control, and will allow you to explore, experiment and learn at your
own initiative.

Language
The course will be taught in English.

Our team
Ana Lozano Valverde, Think Visual [video direction and production]
Iago Lpez,
14 pies [video production]
Wouter De Vylder [animation]
Juana Calle
[administration]
Lorenzo Hernndez, Quantitative Risk Research, S.L. [course contents]
Jaime
Vinuesa, Quantitative Risk Research, S.L. [course contents]
Alberto Surez,
Universidad Autnoma de Madrid [course direction]
Special thanks to Profs. Jose Luis Fernndez Prez and Santiago Carrillo
Mendez from the Mathematics department at the Universidad Autnoma de
Madrid for their input and advice.

FAQ
Where can I find the software needed for the course?
The programs used in the course can be executed either in GNU Octave
(version 3.6.4) or in MATLAB.
GNU Octave is freely redistributable software and can be downloaded from
http://www.gnu.org/software/octave/. The version that should be used in
Windows is Octave3.6.4_gcc4.6.2, which can be retreived at the URL Octave
3.6.4 for Windows MinGW. Please follow the instructions in that webpage to
install the software.
MATLAB is commercial software and you need to have a valid license to install
it in your computer. As a result of support from MathWorks, students will be
granted a downloadable license to MATLAB and the recommended toolboxes
(Statistics and Optimization) for the duration of the course.
Where can I find information on the iversity platform?
Please have a look at the iversity FAQ if you have any general questions

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