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School of Mathematics

MATH20912 - 2007/2008

General Information
• Title: Introduction to Financial Mathematics
• Unit code: MATH20912
• Credit rating: 10
• Level: 2
• Pre-requisite units: MATH10121 or MATH10131, MATH10141 (or some familiarity with basic probability and statistics), MATH10222, MATH11222 or MATH10232
• Co-requisite units:
• School responsible: Mathematics
• Members of staff responsible: Prof. 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.

Syllabus

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<. In additional students are expected to work for about four hours each week for this course unit.

Assessment

Coursework; Weighting within unit 20%
2 hours end of semester examination; Weighting within unit 80%

Arrangements

Online course materials are available for this unit.

Last modified: 6 September 2007.

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