MATH20912

General Information

Title: Introduction to Financial Mathematics
Unit code: MATH20912
Credit rating: 10
Level: 2
Pre-requisite units: MT1121 or MT1131, MT1141 (or some familiarity with basic probability and statistics), MT1222 or MT1232
Co-requisite units:
School responsible: Mathematics
Member of staff responsible: Sergei Fedotov

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Unit specification

Aims: The programme unit aims to enable students to acquire active knowledge and understanding of some basic concepts in financial mathematics including stochastic models for stocks and pricing of contingent claims.
Brief description: This course is intended to serve as a basic introduction to financial mathematics. It gives a mathematical perspective on the valuation of financial instruments (futures, options, etc.) and their risk-management. The purpose of the course is to introduce students to the stochastic techniques employed in derivative pricing.

Intended learning outcomes

On completion of this unit successful students will be able to price financial derivates

Future topics requiring this course unit: Third level courses in financial mathematics.

1. Overview of basic concepts in securities markets.

2. Stochastic models for stock prices.

3. Hedging strategies and managing market risk using derivatives.

4. Binomial option pricing model.

5. Risk-neutral valuation, replication and pricing of contingent claims.

6. Black-Scholes analysis.

7. Stochastic volatility and stochastic interest rare.

Textbooks: J. Hull, Options, Futures and Other Derivatives, 4th Edition, Prentice-Hall, 2000.; P. Wilmott, S. Howison and J. Dewynne, The Mathematics of Financial Derivatives: A Student Introduction, Cambridge University Press, 1995
Learning and teaching processes: Two lectures and one examples class each week
Assessment: Coursework Weighting within unit 20%; 2 hours end of semester examination; Weighting within unit 80%

Online course materials are available for this unit.