Rice University
Instructors
Dennis CoxTime and Place
Duncan Hall 2080, 713 / 348 6007
Office Hours: T Th 10:50 - 12:00, or by appointment
Dr. Rudolf Riedi
Duncan Hall 2082, 713 / 348 3020,
Office Hours: T Th 10:50 - 12:00, or by appointment
Tuesday 12:40 - 1:40 pm, Thursday 12:10 - 1:40 pm, Location HZ 122
Outline
Grading
1/4 Homework
1/4 Exam 1 on Basics (Martingale theory, Ito calculus, Kalman-Bucy, Details TBA)
1/2 Exam 2 on Advanced topics (Dynkin, Kolmogorov, Girsanov, Details TBA)
or Course Project [agree with instructor on project topic by March 12]
[Outline] [Textbooks] [Grading] [Reading] [Homework problems and solutions]
Material covered during class
This doubles as a calendar for the course.
Check the schedule of 2004 for an idea on the course contents and progression.
Covered material | Suggested reading | |
January 12 (C) |
Orientation, history | |
January 17 (R) |
I. Stochastic Integral. Basics !.1. Probability background Conditional Expectation. L2-norm |
Lecture
notes by Dennis Cox or "A Probability Path" by Resnick, [Introd. + properties of integrals + p 345-348] |
January 19 (R) | Brownian motion, Construction, Martingale and Markov property |
Oksendal ch 1+2 "Adventures..." (Resnick) ch 6, p482-499 |
January 24 (R) | Brownian motion: reflection, extreme
values Simple Processes: Ito and Stratonovich |
Resnick "Adventures Stoch.
Processes" Oksendal, ch 3 first 4 pages (pp 21-24) |
January 26 (R) | Ito integral of simple processes are
continuous martingales adapted L2 processes can be approximated by simple processes |
Oksendal ch 3 pp 25-28 |
January 31 (R) | General Ito integral, Ito isometry, int W dW; multidimensional Ito Integral | Oksendal pp 29-30 ; pp 34-35 |
February 2 (R) | Ito integrals are continuous
martingales; compare with Stratonovich |
Oksendal pp 30-33; Oksendal pp 36-37 |
February 7 (R) | Ito processes, Ito formula; Integration by parts | Oksendal Ch 4: pp 43-45;46 |
February 9 (R) | Solutions of Stochastic Differential
Equations; Review |
Oksendal Ch 5 |
February 14 (C) | Filtering: Problem formulation; Best Linear Estimation in the Gaussian case |
Oksendal Ch 6 |
February 16 (C) | Filtering: Best Linear Prediction for Gaussian processes | Oksendal Ch 6 |
February 21 (C) | Filtering: Innovation Process | Oksendal Ch 6 |
February 23 (C) | Filtering: Riccatti equation for mean square error | Oksendal Ch 6 |
February 28 (C) |
Diffusion processes, Markov
property |
Oksendal Ch 7 |
March 2 (C) |
Stopped Filtration |
|
March 7 (C) |
Strong Markov Property |
|
March 9 (C) |
Generator |
|
March 14+ 16 |
Spring Break |
|
March 21 (C) |
Dynkin's formula | |
March 23 (C) |
Exit Time of BM from Disc and Ring |
|
March 28 (C) |
Characteristic Operator |
|
March 30 (R) |
Kolmogorov backward equations Fokker-Planck or forward equations Motivation and Intuition |
|
April 4 (R) |
forward & backward equations,
formal proof Self-financing Portfolio, Options |
Oksendal Ch 8.1 Ch 12.1 |
April 6 |
Spring Recess |
|
April 11 (R) |
Black-Scholes PDE for option
pricing |
Oksendal Ch 12.3 |
April 13 (R) |
Change of Measure |
Mikosch |
April 18 (R) |
Black-Scholes Price via Pricing Measure | Mikosch |
April 20 (R) |
Girsanov Transform, Novikov, weak
solutions |
Oksendal Ch 8.6 |
April 25 + 27 (joint) |
Projects (topics from Physics,
Bayesian analysis, Computational Finance) |
[Outline] [Textbooks] [Grading] [Reading] [Homework problems and solutions]
Homework
(tex-source and solutions restricted to Rice University)
Homework sheet | Due date (in class) | Direct questions to |
Solutions |
Problem Set 1 [ps] [pdf] [tex] | Feb 9, 2006 | Dr. Riedi |
Solution 1 [ps] [pdf] [tex] |
Problem Set 2 [ps] [pdf] [tex] | Feb 21, 2006 | Dr. Riedi |
Solution 2 [ps] [pdf] [tex] |
Problem Set 3: Oksendal 6.1 6.13 | Feb 23, 2006 | Dr. Cox |
In class |
Problem Set 4: [pdf] |
March 21, 2006 |
Dr. Cox |
In class Mar 23 |
Problem Set 5 [ps] [pdf] [tex] | April 27, 2006 | Dr. Riedi |
[ps] [pdf] [tex] |
Homework is due at the beginning of class on the due date. After the due date, but before solutions are handed out, homework can be turned in for 50% credit. In this case, please slip your homework under the instructors's office door, or bring it to class. After solutions are handed out, 0% credit will be issued. You are encouraged to work in groups for homeworks but you will hand in your own solution which you are expected to understand.
[Outline] [Textbooks] [Grading] [Reading] [Homework problems and solutions]