This course deals with basic financial derivatives theory, arbitrage, hedging, and risk. The theory discusses Ito’s lemma, the diffusion equation and parabolic partial differential equations, and the Black-Scholes model and formulae. The course includes applications of asset price random walks, the log-normal distribution, and estimating volatility from historic data. Numerical techniques, such as finite difference and binomial methods, are used to value options for practical examples.