> ## Content Index > Fetch the complete content index at: https://fsc.stevens.edu/llms.txt > Use this file to discover other available public pages before exploring further. # FE543 Introduction to Stochastic Calculus for Finance - URL: https://fsc.stevens.edu/fe543-introduction-to-stochastic-calculus-for-finance/ - Published: 2019-11-25T15:57:07.000Z - Updated: 2026-05-16T22:34:45.000Z - Author: Kajol - Tags: Courses, #Import 2024-05-30 10:26, #Import 2025-11-08 22:14 Course Catalog Description # Introduction This course introduces stochastic calculus to students of finance and financial engineering. Initially the students are exposed to the Binomial Asset Pricing model, which is used to develop the theory around martingales and risk-neutral pricing with discrete examples. The course then moves into using Geometric Brownian motion which leads to the Black-Scholes-Merton model as its basis for the stock market to develop the theory for continuous models. This course is intended for students who are interested in stochastic calculus but have only a basic background in probability. | Campus | Fall | Spring | Summer | | ---------- | ---- | ------ | ------ | | On Campus | X | X | | | Web Campus | X | X | | Instructors | Professor | Email | Office | | -------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------ | ------- | | [Thomas Lonon](https://web.stevens.edu/facultyprofile/?id=2040&ref=fsc.stevens.edu) ![](https://fsc.stevens.edu/content/images/2019/10/Thomas_Lonon.jpg) | tlonon@stevens.edu | Virtual | More Information # Course Description This course is designed for advanced undergraduate students and masters students in Financial Engineering. The goal is to learn the foundation on which Finance is built upon. The students are supposed to have a strong background in applied mathematics (analysis and calculus) and probability at an undergraduate level. Any student who does not already have this previous knowledge will have much greater difficulty learning the material. Course Resources # Textbook Stochastic Calculus for Finance vol I and II, by Steven E. Shreve, Springer Finance, 2004, ISBN-13: 978-0387249681 (vol I) and 978-0387401010 (vol II). # Additional References Introduction to Probability Models, 10th edition, by Sheldon M. Ross, Academic Press, 2009, ISBN-10: 0123756863, ISBN-13: 978-0123756862 Probability and Random Processes, by Geoffrey Grimmett and David Stirzaker, Oxford University Press 2001 Stochastic Differential Equation, by Bernt Oksendal, 6th edition, 2010, ISBN-10: 3540047581, ISBN-13: 978-3540047582 Introduction to the Mathematics of Financial Derivatives, by by Salih N Neftci, 2nd ed, Associated Press, 2000, ISBN 0125153929 Grading # Grading Policies **Homework** There will be around 5 homework assignments throughout the semester. Collaboration is encouraged as it can be helpful to understand some of these concepts. Do not confuse collaboration for academic misconduct. Attempt each problem on your own before seeking help from another person. Make sure that you understand the entire assignment that you turn in, and could reproduce the work or solve a similar problem. Do not think that you can simply copy another person's assignment and expect to understand the material. Late homework will be accepted under the following policy. If the homework is turned in within one week of the original due date, it will receive 2/3 (two third) of its score, going down by a third each week it is late. The homework assignments will have a very firm deadline, of 11:55 PM on the due date. When I say this is a firm date, I mean that if homework is submitted online at 11:56 PM, its late, no exceptions. Plan ahead and submit your homework early to avoid problems due to internet or computer issues. **Exams** There will be one midterm and one final exam given in the class. If you miss an exam, you must provide a written explanation signed by proper authorities in order to be allowed the chance to take a replacement exam. The midterm and final exam are closed book, but each student can bring one handwritten page of notes to the midterm and two handwritten pages of notes to the final. Calculators are permitted and encouraged, but cell phones and notebook computers are not allowed. The final grade in the class will be determined in the following manner: - 20% Homeworks - 30% Midterm - 50% Final Exam Lecture Outline | | Topic | Reading | | ------- | ---------------------------------------- | --------------------- | | Week 1 | One Period BAPM | Ch. 1 in vol. I | | Week 2 | Multiperiod Model and FPS | Ch. 1 and 2 in vol. I | | Week 3 | Expectation in BAPM | Ch. 2 in vol. I | | Week 4 | Martingales and Markov | Ch. 2 in vol. I | | Week 5 | Stopping Times and RW | Ch. 4 & 5 in vol. I | | Week 6 | SSRW and BM | Ch. 3 in vol. II | | Week 7 | Quadratic Variation and MP | Ch. 3 in vol. II | | Week 8 | Midterm | | | Week 9 | Reflection Prop. and Cont. Passage Times | Ch. 3 in vol. II | | Week 10 | Stochastic Calculus Integrands | Ch. 4 in vol. II | | Week 11 | Ito’s Formula | Ch. 4 in vol. II | | Week 12 | Black-Scholes and Levy | Ch. 4 in vol. II | | Week 13 | Change of Measure | Ch. 5 in vol. II | | Week 14 | Review & Catch-up | |