Financial Mathematics II

7.5 credits

Syllabus, Master's level, 1MA041

This course has been discontinued.

A revised version of the syllabus is available.

Code: 1MA041
Education cycle: Second cycle
Main field(s) of study and in-depth level: Mathematics A1F
Grading system: Fail (U), Pass (3), Pass with credit (4), Pass with distinction (5)
Finalised by: The Faculty Board of Science and Technology, 6 November 2007
Responsible department: Department of Mathematics

Entry requirements

120 credit points and Finance I

Learning outcomes

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

be able to construct models for pricing finansial derivatives;

be able to price simple financial derivatives with risk neutral valuation;

be able to present financial models and pricing to various users of financial instruments;

be able to use stochastic calculus in various areas of application;

know 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 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 and, possibly, oral examination at the end of the course. Moreover, compulsory assignments may be given during the course.