MA320-7-SP-CO:
Financial Derivatives

The details
2019/20
Mathematical Sciences
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)

Key module for

DIP GN1309 Mathematics and Finance,
MSC GN1312 Mathematics and Finance,
MSC GN1324 Mathematics and Finance,
DIP N32309 Actuarial Science,
MSC N32312 Actuarial Science

Module description

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.

Module aims

The aim of the module is tto gain insight into the methods used for pricing various financial derivatives and risk management.

Module learning outcomes

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.

Module information

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.

Learning and teaching methods

Contact hours: 43 hours Lectures: 35 sessions Problem classes: 5 sessions Summer revision: 3 hours

Bibliography

This module does not appear to have a published bibliography.

Assessment items, weightings and deadlines

Coursework / exam Description Deadline Weighting
Written Exam Test 1
Written Exam Test 2
Exam 120 minutes during Summer (Main Period) (Main)

Overall assessment

Coursework Exam
20% 80%

Reassessment

Coursework Exam
0% 100%
Module supervisor and teaching staff
Dr John O'Hara, email johara@essex.ac.uk
Dr John O'Hara (johara@essex.ac.uk)

 

Availability
No
No
No

External examiner

Dr Dimitrina Dimitrova
Cass Business School, City, University of London
Senior Lecturer
Resources
Available via Moodle
Of 47 hours, 41 (87.2%) hours available to students:
6 hours not recorded due to service coverage or fault;
0 hours not recorded due to opt-out by lecturer(s).

 

Further information
Mathematical Sciences

Disclaimer: The University makes every effort to ensure that this information on its Module Directory is accurate and up-to-date. Exceptionally it can be necessary to make changes, for example to programmes, modules, facilities or fees. Examples of such reasons might include a change of law or regulatory requirements, industrial action, lack of demand, departure of key personnel, change in government policy, or withdrawal/reduction of funding. Changes to modules may for example consist of variations to the content and method of delivery or assessment of modules and other services, to discontinue modules and other services and to merge or combine modules. The University will endeavour to keep such changes to a minimum, and will also keep students informed appropriately by updating our programme specifications and module directory.

The full Procedures, Rules and Regulations of the University governing how it operates are set out in the Charter, Statutes and Ordinances and in the University Regulations, Policy and Procedures.