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<br /><ul> <li> be able to construct models for pricing finansial derivatives;</li> <li> be able to price simple financial derivatives with risk neutral valuation;</li> <li> be able to present financial models and pricing to various users of financial instruments;</li> <li> be able to use stochastic calculus in various areas of application;</li> <li> know Feyman-Kac's representation formula and be able to use it to find solutions of parabolic partial differential equations.</li></ul>

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 examination at the end of the course.

Other directives

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