Markets: A Rigorous Course
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Readings and resources

Core about 5 min

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  1. Hull, Options, Futures, and Other Derivatives, 11th ed. (Pearson, 2021): Ch. 10 (mechanics of options markets), Ch. 11 (properties of stock options: bounds, parity, early exercise), Ch. 13 (binomial trees), Ch. 14 (Wiener processes and Itô's lemma), Ch. 15 (Black–Scholes–Merton), Ch. 18 (futures options and Black's model), Ch. 19 (the Greek letters). Chapter numbers drift slightly across editions.
  2. For Indian contract mechanics and moneyness, 8.1 and 8.9 of this module; for the desk view with NSE examples, M09A.
  3. MIT OCW 18.S096 (Fall 2013), Lecture 17 "Stochastic Processes II", Lecture 18 "Itō Calculus", Lecture 19 "Black-Scholes Formula, Risk-neutral Valuation": https://ocw.mit.edu/courses/18-s096-topics-in-mathematics-with-applications-in-finance-fall-2013/video_galleries/video-lectures/

For depth 4. Shreve, Stochastic Calculus for Finance I: The Binomial Asset Pricing Model (Springer, 2004), Ch. 1–2 (one-period and multi-period no-arbitrage, risk-neutral measure, American options in Ch. 4). 5. Shreve, Stochastic Calculus for Finance II: Continuous-Time Models (Springer, 2004), Ch. 3 (Brownian motion, quadratic variation), Ch. 4 (Itô integral, Itô's lemma, BSM PDE, 4.5), Ch. 5 (Girsanov, risk-neutral pricing), Ch. 6 (Feynman–Kac). 6. Natenberg, Option Volatility and Pricing, 2nd ed. (McGraw-Hill, 2015): the chapters on the Greeks and early exercise, for the trader's view. 7. NPTEL, Probability and Stochastics for Finance (Prof. Joydeep Dutta, IIT Kanpur): https://archive.nptel.ac.in/noc/courses/noc16/SEM1/noc16-ma02 — an Indian refresher on Itô calculus and the Black–Scholes formula.

Papers

  • Black, F. and Scholes, M. (1973). "The Pricing of Options and Corporate Liabilities." Journal of Political Economy 81(3): 637–654. https://www.jstor.org/stable/1831029
  • Merton, R. C. (1973). "Theory of Rational Option Pricing." Bell Journal of Economics and Management Science 4(1): 141–183. https://www.jstor.org/stable/3003143
  • Black, F. (1976). "The Pricing of Commodity Contracts." Journal of Financial Economics 3(1–2): 167–179. https://doi.org/10.1016/0304-405X(76)90024-6
  • Cox, J. C., Ross, S. A. and Rubinstein, M. (1979). "Option Pricing: A Simplified Approach." Journal of Financial Economics 7(3): 229–263. https://doi.org/10.1016/0304-405X(79)90015-1
  • Harrison, J. M. and Kreps, D. M. (1979). "Martingales and Arbitrage in Multiperiod Securities Markets." Journal of Economic Theory 20(3): 381–408.
  • Harrison, J. M. and Pliska, S. R. (1981). "Martingales and Stochastic Integrals in the Theory of Continuous Trading." Stochastic Processes and their Applications 11(3): 215–260.
  • Manaster, S. and Koehler, G. (1982). "The Calculation of Implied Variances from the Black–Scholes Model: A Note." Journal of Finance 37(1): 227–230.
  • Leisen, D. and Reimer, M. (1996). "Binomial Models for Option Valuation – Examining and Improving Convergence." Applied Mathematical Finance 3(4): 319–346.
  • Jäckel, P. (2015). "Let's Be Rational." Wilmott 2015(75): 40–53. http://www.jaeckel.org/LetsBeRational.pdf

Case-study sources

Indian primary sources

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