MA320-7-SP-CO:
Financial Derivatives
2019/20
Mathematics, Statistics and Actuarial Science (School of)
Colchester Campus
Spring
Postgraduate: Level 7
Current
Monday 13 January 2020
Friday 20 March 2020
15
01 October 2019
Requisites for this module
(none)
(none)
(none)
(none)
(none)
DIP GN1309 Mathematics and Finance,
MSC GN1312 Mathematics and Finance,
MSC GN1324 Mathematics and Finance,
DIP N32309 Actuarial Science,
MSC N32312 Actuarial Science
This module introduces the basic mathematical techniques underlying the modelling of derivative pricing.
A student will acquire skills on the development and application of pricing and risk management.
An introduction to stochastic methods is presented. Emphasis is placed risk-neutral valuation, the Black-Scholes-Merton model and interest rate models. The module also includes a brief introduction to credit risk.
The aim of the module is tto gain insight into the methods used for pricing various financial derivatives and risk management.
By the end of this module a student should:
1. Understand and applying the properties of Brownian motion, Ito's integral and the role of stochastic differential equations in finance.
2. Apply arbitrage arguments in modern finance.
3. Use discrete methods to evaluate derivatives, and illustrate the EMM method.
4. An appreciation of the limitations of the Black-Scholes-Merton model and how these deficiencies can be mitigated. This includes the construction and application of the Greeks in hedging.
5. Understand and apply the stochastic models for interest rates.
6. Demonstrate knowledge of simple credit rate models.
Syllabus
Brownian motion: properties and applications. Ito's integral, Ito's lemma, stochastic differential equation.
Pricing derivatives: arbitrage arguments, complete market, forward contracts, binomial methods, risk-neutral pricing, state-price deflator, Black-Scholes-Merton model, martingales, Garman-Kohlhagen, hedging. Applications.
Interest rate derivatives: term structure, one-factor diffusion models, Vasicek and other common models. Yield curve.
Credit risk: credit event, modelling credit risk, Merton model, two state model.
Contact hours: 43 hours
Lectures: 35 sessions
Problem classes: 5 sessions
Summer revision: 3 hours
This module does not appear to have any essential texts. To see non-essential items, please refer to the module's reading list.
Assessment items, weightings and deadlines
Coursework / exam |
Description |
Deadline |
Coursework weighting |
Written Exam |
Test 1 |
|
|
Written Exam |
Test 2 |
17/03/2020 |
|
Exam |
Main exam: 24hr during Summer (Main Period)
|
Exam format definitions
- Remote, open book: Your exam will take place remotely via an online learning platform. You may refer to any physical or electronic materials during the exam.
- In-person, open book: Your exam will take place on campus under invigilation. You may refer to any physical materials such as paper study notes or a textbook during the exam. Electronic devices may not be used in the exam.
- In-person, open book (restricted): The exam will take place on campus under invigilation. You may refer only to specific physical materials such as a named textbook during the exam. Permitted materials will be specified by your department. Electronic devices may not be used in the exam.
- In-person, closed book: The exam will take place on campus under invigilation. You may not refer to any physical materials or electronic devices during the exam. There may be times when a paper dictionary,
for example, may be permitted in an otherwise closed book exam. Any exceptions will be specified by your department.
Your department will provide further guidance before your exams.
Overall assessment
Reassessment
Module supervisor and teaching staff
Dr John O'Hara, email: johara@essex.ac.uk.
Dr John O'Hara, email johara@essex.ac.uk
Dr John O'Hara (johara@essex.ac.uk)
No
No
No
Dr Dimitrina Dimitrova
Cass Business School, City, University of London
Senior Lecturer
Available via Moodle
Of 106 hours, 39 (36.8%) hours available to students:
67 hours not recorded due to service coverage or fault;
0 hours not recorded due to opt-out by lecturer(s).
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