MATH31032 Introduction to Financial Mathematics

This is former 368/MA3032

 SEMESTER: Second
CONTACT: Professor Sergei Fedotov (M/05) CREDIT RATING:  10
Rationale The course is intended to serve as an introduction to the basic elements of financial mathematics. 
Learning Outcomes On successful completion of the course students will have acquired active knowledge and understanding of some basic concepts and results in financial mathematics including:
  • Hedging strategies and managing market risk using derivatives
  • Binomial model.  Risk-neutral valuation.
  • Diffusion-type models for stock prices
  • Black-Scholes formula

Pre-requisites for this module:
  • 111,112,114,151(ex-UMIST)
  • MT1121, MT1141, MT1212, MT1222 (ex-VUM)

Dependent Modules

  
Teaching Mode 22 hours lectures
11 hours tutorials 
Recommended Texts:
  1. J. Hull, Options, Futures and Other Derivatives, 4th Edition, Prentice-Hall, 2000.
  2. P. Wilmott, S. Howison and J. Dewynne.  The Matheamtics of Financial Derivatives: A Student Introduction, Cambrdige University Press, 1995.
Assessment Methods: Examination: 80%

2 hour examination at end of second semester

Coursework : 20%. Test in Week 7.

No of Lectures Syllabus
Equilibrium model of finance economy.  Aribtrage, interest rate, and discounted value.
Complete and incomplete markets.  Financial market equilibrium and partial equilibrium asset pricing in discrete and continuous time.
Term structure of interest rates, hedging strategies and managing market risk using options, futures and swaps.
Binomial model. Risk-neutral valuation.
Diffusion-type models for stock prices, geometric Brownian motion, option pricing, Black-Scholes formula. Exotic options.

 Last Revised August, 2006