Chapter 1. From diffusive processes to Lévy processes.
A review of the most recent developments of the statistics of financial markets, the inclusion of jumps, time changes and the like, and the problems raised for pricing and risk evaluation
Chapter 2. Calculus on complex domain : a primer
The reader is introduced to the main technical concepts from complex analysis that will be used throughout the book. Particularly, the reader will be introduced to the concept of path integral in the complex domain.
Chapter 3. Option pricing by Fourier transforms
The use of Fourier transform in asset pricing is introduced for the simplest products, namely digital products. This enables the reader to learn the basic principles of integration in the complex domain, using Heavyside step functions and Dirac delta function, and applying that directly to solve the basic pricing problem of a Arrow-Debreu securities
Chapter 4. Pricing plain vanilla options
Fourier transform methods are applied to the price of plain vanilla options. The reader is introduced to the problem first in the standard Black and Scholes model, and then in the Heston model, allowing for stochastic volatility. Some points that are left unexplained in the literature are also tackled.
Chapter 5. Pricing barrier options
The reader is introduced to frontier issues in the use of Fourier transforms for pricing barrier options. As in the previous chapter, the analysis is first performed in the standard model and then in a more general one. The chapter introduces the reader to Wiener-Hopf factorization techniques.
Chapter 6. Pricing exotic options
Several applications are proposed for standard classes of univariate exotic options, such as Asian options, lookback, and the like.
Chapter 7. Credit risk pricing applications
Factor copula models and the generating function technique is introduced, and the Fourier transform approach used in the market is investigated in detail.
Chapter 8. Multivariate pricing application
The chapter introduces frontiers issues in the topic. The analysis touches upon new results on multivariate analysis for Levy processes and introduces original research and results on the subject, that the group will be developing next year.