by Kaixin Yan, Wenyuan Wang, Xiang Yu
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Suggested foundations for stochastic processes and pricing and portfolio construction. Specialist prerequisites vary by paper.
Understand what it means to condition on current information.
Follow Brownian dynamics and the second-order term in Itô calculus.
Understand the covariance structure of portfolio risk.
Read objectives, constraints and optimality conditions.
Connect stochastic dynamics to no-arbitrage prices.
Translate continuous dynamics into a numerical experiment.
Construct allocations and examine sensitivity to estimated inputs.
Start in discrete time, move to Brownian motion, then read the original pricing argument and simulate it.
Connect diversification, common risk factors, investor views, and the properties of a risk measure.