I recently followed a course about „Monte-Carlo methods in finance“ on Iversity done by Alberto Suaréz. I did that

- to learn about online courses in general and specifically at Iversity,
- to learn about the Black-Scholes model in finance and the fair pricing of options,
- to see if the Monte-Carlo methods presented there could be done in EMT easily.

Overall, I found the course well done and worth the time. Then, I am a mathematician myself and cannot judge the problems students would face. If anything, I was missing a proper foundation of some of the basics. Proofs looked a bit short as if the author was shy to present proofs at all. The course is more directed towards practical applications, which is not a bad aim to start with. Also, I had not the time to look at the homework.

I found this course at Iversity much better than many of the talks you find in the net from the MIT. This was not a ragged professor stuttering to a mediocre blackboard presentation. It was well done and professional, a model for such courses. The site itself is a pleasure to visit with easy to find course material. It had no technical issues that I could not overcome. As I said, I wished the mathematics were laid out in more detail. But that is my only complaint.

I also learned a lot about financial models of the stock market. It confirmed my doubts about the validity of these models. Even if we assume that the price of assets follows a log normal distribution I have problems to see what a „fair price“ means in real life. Sure, it is is the expected payoff of an option. An expected value of a random variable can be determined by Monte-Carlo methods very accurately. But the expected value has only a meaning if you deal with a lot of independent options. In reality, there are either too few options involved or they are depending on one another. If the market breaks down, all of them break down. Moreover, the fair price depends on assumptions on interest rates and volatilities which are hard to get and to justify. In short, I wouldn’t trust these fair prices a minute.

The workout in EMT went very well. I have presented some computations in this blog already. EMT seems to be well equipped and suited to do this kind of simulations.