An Introduction to Financial Derivatives: Open Lecture Notes

Abstract

These lecture notes give a broad introduction to financial derivatives at the level of a Masters program in quantitative finance. Topics include forward and futures contracts, no-arbitrage bounds and put-call parity, the binomial model, the fundamental theorems of asset pricing, Brownian motion and Itô calculus, the Black-Scholes model, the Greeks, variance swaps, local and stochastic volatility models including Heston, and static hedging of barrier options. Each chapter ends with exercises, and complete solutions, including Python code for the computational exercises, are provided in an appendix. The notes are open source: the LaTeX source is available at https://github.com/mattlorig/intro-financial-derivatives, and readers are invited to submit corrections and additions.