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
Pass with distinction (5), Pass with credit (4), Pass (3), Fail (U)
Finalised by
The Faculty Board of Science and Technology, 8 March 2012
Responsible department
Department of Mathematics

Entry requirements

120 credit points including 40 credit points of Mathematics. Financial Theory I recommended.

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.

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