by Chris Kenyon
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Suggested foundations for options and derivatives pricing and credit and counterparty risk. Specialist prerequisites vary by paper.
Build replication and risk-neutral probabilities in a tractable model.
Distinguish pricing probabilities from physical forecasts.
Separate default probability, loss severity and exposure.
Read conditional default and exposure quantities.
Connect the pricing equation, closed-form value and implied volatility.
Study dependence between defaults.
Connect exposure and counterparty losses to valuation adjustments.
Start in discrete time, move to Brownian motion, then read the original pricing argument and simulate it.