Syllabus for Financial Derivatives

Learning outcomes

On completion of the course, 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. 
 
If there are special reasons for doing so, an examiner may make an exception from the method of assessment indicated and allow a student to be assessed by another method. An example of special reasons might be a certificate regarding special pedagogical support from the disability coordinator of the university.

Other directives

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