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Finanzmathematik II / Stochastic Calculus and Arbitrage Theory in Continuous Time

Prof. Dr. Thilo Meyer-Brandis, Annika Steibel

Schedule and Venue

Prof. Dr. Thilo Meyer-Brandis

Tuesday, 10.15 - 11.45

Thursday, 10.15 - 11.45



Exercise Classes
Annika Steibel

Wednesday, 16.15 - 17.45


Final Exam



Retake Exam

Thursday, 07 April, 10.00 - 12.00 s.t.


 The course will be organised via Moodle ( where you can log in using your LMU e-mail address ( If you wish to participate in the course, please sign up by sending an e-mail from your LMU e-mail address to Annika Steibel (

The first lecture will be held on Tuesday, 19 October 2021. (Please note: due to a clash with another module, the Tuesday lectures now start at 10.00 c.t.)

The first exercise class will be held on Wednesday, 27 October 2021.

Please note that registration for the exam as well as for the retake exam is mandatory. The details will be announced after the christmas break.

Course Description

The lecture provides an introduction to stochastic calculus with an emphasis on the mathematical concepts that are later used in the mathematical modeling of financial markets.

In the first part of the lecture course the theory of stochastic integration with respect to Brownian motion and Ito processes is developed. Important results such as Girsanov's theorem and the martingale representation theorem are also covered. The first part concludes with a chapter on the existence and uniqueness of strong and weak solutions of stochastic differential equations.

The second part of the lecture course gives an introduction to the arbitrage theory of financial markets in continuous time driven by Brownian motion. Key concepts are the absence of arbitrage, market completeness, and the risk neutral pricing and hedging of contingent claims. Particular attention will be given to the the Black-Scholes model and the famous Black-Scholes formula for pricing call and put options.


Stochastic calculus:

C. Dellacherie and P. A. Meyer. Probabilities and Potential B: Theory of Martingales. North-Holland, Amsterdam, 1982.
I. Karatzas and S. E. Shreve. Brownian Motion and Stochastic Calculus. Springer, New York, second edition, 1991.
B. Oksendal. Stochastic Differential Equations: An Introduction with Applications. Springer, Berlin, sixth edition, 2003.

Continuous Time Finance:

T. Björk. Arbitrage Theory in Continuous Time. Oxford University Press, New York, third edition, 2009.
I. Karatzas and S. E. Shreve. Methods of Mathematical Finance. Springer, New York, 1998.
B. Oksendal. Stochastic Differential Equations: An Introduction with Applications. Springer, Berlin, sixth edition, 2003.

For whom is this course?

Target Participants: Master students of Financial and Insurance Mathematics or Mathematics.

Pre-requisites: Probability Theory.

Applicable credits: Students may apply the credits from this course to the Master Finanz- und Versicherungsmathematik (WP12 (PO2011) resp. P1 (PO2019)) or to the Master Mathematik (WP23).


Correcting your answers and thinking through the exercises is the best preparation for the exam.

Problem Sheets: During the course, weekly problem sheets will be uploaded on Moodle.

Final Exams