Financial Mathematics
Explore time and risk models; arbitrage and discrete pricing; continuous models and limits. Concepts and connections are available independently of video coverage.
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Value at Risk
VaR is a loss quantile at a stated horizon and confidence level, not a maximum possible loss.
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Black–Scholes model
Option pricing follows a diffusion market with restrictive volatility, trading and friction assumptions.
Model risk
Incorrect assumptions, calibration or use can invalidate model-based conclusions.
Binomial pricing models
Up-and-down price moves support backward valuation under no-arbitrage assumptions.
Compound interest
Interest accrues on both principal and previously accumulated interest.
Geometric Brownian motion
A multiplicative stochastic differential model keeps positive initial asset prices positive.
Knowledge connections
- Black–Scholes model · Related · Map context
- Model risk · Related · Map context