Quantitative Financial Analysis

2 credits
BU.230.710.52
Tuesdays 6-9pm, 3/24/2015-5/12/2015
Spring II 2015
DC Center, Room 109

Instructor
Stuart Urban
Contact Information
Phone Number: (443)956-6067
E-mail Address: surban1@jhu.edu
TA
Ben Brock
Phone Number: (571)235-9616
E-mail Address: bbrock1@jhu.edu
Office Hours
Saturdays, Baltimore Harbor East, 9am to noon (with Stuart) [Room 216]
Saturdays, Washington DC Center, 9am to noon (with Ben) [Room 212]
Required Text and Learning Materials:
Stochastic Simulation and Applications in Finance with MATLAB Programs, (2009 ISBN 978-0-47072538-2), Huu Tue Huynh, Van Son Lai, Issouf Soumare (HLS)
MATLAB: An Introduction with Applications (5th Ed. ISBN 978-1-118-62986-4) (2014), Amos Gilat (AG)
Software: Matlab, student version (provided by Carey) [See: Appendix: Obtaining Matlab]
Optional Reference Book:
Options, Futures and Other Derivatives, 7th or 8th Edition, John C. Hull
Blackboard Site
A Blackboard course site is set up for this course. Each student is expected to check the site throughout
the semester as Blackboard will be the primary venue for outside classroom communications between the
instructors and the students. Students can access the course site at https://blackboard.jhu.edu. Support
for Blackboard is available at 1-866-669-6138.
Course Evaluation
As a research and learning community, the Carey Business School is committed to continuous
improvement. The faculty strongly encourages students to provide complete and honest feedback for this
course. Please take this activity seriously because we depend on your feedback to help us improve so
you and your colleagues will benefit. Information on how to complete the evaluation will be provided
towards the end of the course.
Disability Services
Johns Hopkins University and the Carey Business School are committed to making all academic
programs, support services, and facilities accessible. To determine eligibility for accommodations, please
contact the Carey Disability Services Office at time of admission and allow at least four weeks prior to the

BU.230.710.52 Quantitative Financial Analysis Stuart Urban Page 2 of 5

beginning of the first class meeting. Students should contact Priscilla Mint in the Disability Services office
by phone at 410-234-9243, by fax at 443-529-1552, or email: carey.disability@jhu.edu.
Important Academic Policies and Services
Honor Code
Statement of Diversity and Inclusion
Student Success Center
Inclement Weather Policy
Students are strongly encouraged to consult the Johns Hopkins Carey Business School Student
Handbook and Academic Catalog and the School website http://carey.jhu.edu/students/studentresources/university-and-school-policies for detailed information regarding the above items.
Course Description:
This course is intended to deal with the fundamentals of Monte Carlo simulation techniques and their
applications in finance. Using Matlab as the programming platform, this course will expose students to
hands-on computer exercises on advanced quantitative topics. This course will train students to become
familiar with simulation techniques in modern financial engineering. Matlab is widely used in many
science disciplines and is also emerging as one of the most popular programming platforms in the
financial industry.
Prerequisite(s): (BU.232.710 or BU.756.761 or BE.756.761) and (BU.232.701 or BU.756.760 or
BE.756.760)
Course Overview:
The past financial crisis showed how difficult it is to correctly price financial instruments. In the
course, students will learn how to apply stochastic calculus and simulation techniques to solve
financial problems and also how to develop and/or adapt the existing contingent claim models to
support financial engineering platforms and applications. The coverage of options pricing and credit
derivatives builds heavily on what you learned in Derivatives. Course topics are as follows,

MATLAB
Monte Carlo Simulations
Options Pricing
Credit Derivatives
Value at Risk

Student Learning Objectives for This Course

All Carey graduates are expected to demonstrate competence on four Learning Goals,
operationalized in eight Learning Objectives. These learning goals and objectives are supported
by the courses Carey offers. For a complete list of Carey learning goals and objectives, please
refer to the website http://carey.jhu.edu/faculty-research/learning-at-carey/learning-assessment.
The learning objectives for this course are:
1. You should be able to write efficient Matlab code.
2. You should be able to perform Monte Carlo Simulations.
3. You should be able to price options and other derivatives.
4. You should be able to compute Value at Risk.
5. You should be able to assess credit risk.
Attendance Policy
Attendance and participation are part of your course grade. Students are expected to attend all scheduled
class sessions. Each class will include programming exercises. Failure to attend class will result in an
inability to achieve the objectives of the course. Excessive absence will result in loss of points.

BU.230.710.52 Quantitative Financial Analysis Stuart Urban Page 3 of 5

Assignments
All students are expected to view the Carey Business School Honor Code/Code of Conduct tutorial and
submit their pledge online. Students who fail to complete and submit the pledge will have a registrars
hold on their account. Please contact the student services office via email carey.students@jhu.edu if you
have any questions.
Students are not allowed to use any electronic devices during in-class tests. Calculators will be provided if
the instructor requires them for test taking. Students must seek permission from the instructor to leave the
classroom during an in-class test. Test scripts must not be removed from the classroom during the test.
There will be six homework assignments, each worth 7%. Please see their assigning and due dates in the
course calendar. All programming assignments should be posted to Blackboard, and the names of your
files should always start with DC52_ and end with _your name (example: DC52_HW1_StuartUrban).
Homework #1: MATLAB computation and programming
Homework #2: MATLAB computation and programming
Homework #3: Probability, MATLAB computation and programming
Homework #4: Credit derivatives
Evaluation and Grading
Assignment
Homework*+
Midterm Exam**
Final Exam***
Total

Learning Objectives
1, 2, 3, 4, 5
1, 2, 3
1, 2, 3, 4, 5

Weight
20%
30%
50%
100%

*Each student must write their Matlab code independently, although discussions of assignments
among students are encouraged.
+Homework is due by the beginning of class, and no late homework will be accepted unless prearranged with the instructor.
**The Midterm Exam will be a 1.5-hour exam given in the fifth class and will cover all course topics
introduced to that point.
***The Final Exam will be given at the last class, and it will cover all course topics.
Important Notes about Grading Policy:
The grade of A is reserved for those who demonstrate extraordinarily excellent performance. The grade
of A- is awarded only for excellent performance. The grade for good performance in this course is a
B+/B. The grades of D+, D, and D- are not awarded at the graduate level.
Please refer to the Carey Business School Student Handbook for grade appeal information
http://carey.jhu.edu/students/student-handbook-and-academic-catalog/

BU.230.710.52 Quantitative Financial Analysis Stuart Urban Page 4 of 5

Tentative Course Calendar*

*The instructors reserve the right to alter course content and/or adjust the pace to accommodate
class progress.
Week

Date

03/24/2015

03/31/2015

04/07/2015

04/14/2015

04/21/2015

04/28/2015

05/05/2015

05/12/2015

Content
Programming in Matlab:
mathematical expression, script
files, and arrays
Programming in Matlab:
conditional statements, loops,
plot, and user-defined functions
Probability, Statistics, and
Simulations: probability
theorems, random number
generators, correlated normal
random numbers, and
applications in Gaussian copula
model and operational risk
Monte Carlo: estimating ,
geometric Brownian motion, and
pricing European Options with
Monte Carlo
Option Pricing: Delta hedging,
pricing Asian options with Monte
Carlo.
Midterm Exam: 1.5 hours
Lecture - Option Pricing: Pricing
American options with binomial
trees
Credit Derivatives: pricing credit
default swaps and other credit
derivatives
Market Risk: Value at Risk, and
its estimation with historical
simulation, parametric
approaches, and Monte Carlo

Reading

Assignments

AG: Chapters 1, 2, 3,
and 4

HW#1 Assigned

AG: Chapters 5, 6,
and 7

HW#2 Assigned
HW#1 Due

HLS: Chapters 1, 2,
3, and 4

HW#3 Assigned
HW#2 Due

HLS: Chapters 5, 9
and 10

HW#3 Due

HLS: Chapter 12

HLS: Chapter 14

HW#4 Assigned

HW#4 Due

Final Exam

Copyright Statement
Unless explicitly allowed by the instructor, course materials, class discussions, and examinations are
created for and expected to be used by class participants only. The recording and rebroadcasting of such
material, by any means, is forbidden. Violations are subject to sanctions under the Honor Code.

BU.230.710.52 Quantitative Financial Analysis Stuart Urban Page 5 of 5

Appendix: Obtaining Matlab

New Matlab users:
Please visit https://itservices.johnshopkins.edu, log in with your JHED
ID/password, and search for Matlab, instructions to download and activate Matlab are listed
there. You no longer need to send an email to software@jhu.edu, as weve been working with
Mathworks to eliminate that step.
Renewal for existing Matlab users: In case you already have Matlab on your machine, please go
to Matlab on your local machine, click on the 'Help' menu button, go to 'Licensing' or 'Update
Current License' button.