Undergraduate: Level 6
Monday 13 January 2020
Friday 20 March 2020
01 October 2019
Requisites for this module
BSC N233 Actuarial Science (Including Placement Year),
BSC N323 Actuarial Science,
BSC N324 Actuarial Science (Including Year Abroad),
BSC N325 Actuarial Science (Including Foundation Year)
This module introduces the basic mathematical techniques underlying the modelling of derivative pricing.
A student will acquire skills on the development 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 to 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 the basic properties of Brownian motion, Ito's integral and the role of stochastic differential equations in finance.
2. Communicate and illustrate the importance of arbitrage arguments in modern finance.
3. Use a binomial model to evaluate derivatives.
4. An appreciation of the significance and limitations of the Black-Scholes-Merton model. This includes the construction and application of the Greeks in hedging.
5. Understand the main models for interest rates.
6. Demonstrate knowledge of simple credit rate models.
Brownian motion: properties. 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.
Interest rate derivatives: term structure, one-factor diffusion models, Vasicek and other common models.
Credit risk: credit event, modelling credit risk, Merton model, two state model.
Contact hours: 38 hours
Lectures: 30 sessions
Problem classes: 5 sessions
Summer revision: 3 hours
This module does not appear to have a published bibliography.
Assessment items, weightings and deadlines
|Coursework / exam
||120 minutes during Summer (Main Period) (Main)
Module supervisor and teaching staff
Dr John O'Hara, email firstname.lastname@example.org
Dr John O'Hara (email@example.com)
Dr Dimitrina Dimitrova
Cass Business School, City, University of London
Available via Moodle
Of 42 hours, 38 (90.5%) hours available to students:
4 hours not recorded due to service coverage or fault;
0 hours not recorded due to opt-out by lecturer(s).
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