IEORE4718 Beyond Black-Scholes: The Implied Volatility Smile

Instructor: Emanuel Derman

Additional Information: IEOR_E4718_Spring2015_Syllabus.pdf

3 pts. Lect: 3. IEOR E4706: Foundations of Financial Engineering, IEOR E4707: Financial Engineering: Continuous Time Models, and knowledge of derivatives valuation models. During the past fifteen years the behavior of market options prices have shown systematic deviations from the classic Black-Scholes model The course will examine the empirical behavior of implied volatilities, in particular the volatility smile that now characterizes most markets, and then discuss the intuition and mathematics behind the new models that can account for the smile. We will discuss in particular the local volatility model, the stochastic volatility model and the jump-diffusion model, and examine their consequences of these models for hedging and valuation.

500 W. 120th St., Mudd 315, New York, NY 10027    212-854-2942                 
©2014 Columbia University