MA320-6-SP-CO:
Financial Derivatives
2018/19
Mathematics, Statistics and Actuarial Science (School of)
Colchester Campus
Spring
Undergraduate: Level 6
Current
Monday 14 January 2019
Friday 22 March 2019
15
-
Requisites for this module
(none)
(none)
(none)
(none)
(none)
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.
Aims
To gain insight into the methods used for pricing various financial derivatives and risk management.
Learning Outcomes
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.
Syllabus
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.
No information available.
No information available.
No additional information available.
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 |
Description |
Deadline |
Coursework weighting |
| Written Exam |
Test 1 |
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| Written Exam |
Test 2 |
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| Exam |
Main exam: 120 minutes during Summer (Main Period)
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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
Miss Claire Watts, Department Manager, email cmwatts@essex.ac.uk
No
No
No
Dr Dimitrina Dimitrova
Cass Business School, City, University of London
Senior Lecturer
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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