Financial Derivatives

7.5 credits

Syllabus, Master's level, 1MA209

A revised version of the syllabus is available.
Code
1MA209
Education cycle
Second cycle
Main field(s) of study and in-depth level
Financial Mathematics A1N, Mathematics A1N
Grading system
Fail (U), Pass (3), Pass with credit (4), Pass with distinction (5)
Finalised by
The Faculty Board of Science and Technology, 24 June 2015
Responsible department
Department of Mathematics

Entry requirements

120 credits including 40 credits in mathematics. Financial Theory I is recommended.

Learning outcomes

In order to pass the course (grade 3) the student should be able to

  • construct models for pricing of financial derivatives;
  • price simple financial derivatives with risk neutral valuation;
  • present financial models and pricing to various users of financial instruments;
  • use stochastic calculus in various areas of application;
  • give an account of Feyman-Kac's representation formula and be able to use it to find solutions of parabolic partial differential equations.

Content

Diffusion processes, stochastic integration and Ito's formula. Arbitrage theory in continuous time. Black-Scholes equation for pricing of financial instruments. Feynman-Kac's representation formula. Risk neutral valuation and hedging. Complete and incomplete markets. Applications to financial instruments such as options, forwards, futures, swaps, interest rate and currency derivatives.

Instruction

Lectures and problem solving sessions.

Assessment

Written examination and assignments.

Other directives

The course can not be included in higher education qualification together with Financial mathematics II or the equivalent.

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