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DRPS : Course Catalogue : School of Mathematics : Mathematics

Postgraduate Course: Financial Mathematics and Investment (MATH11048)

Course Outline
SchoolSchool of Mathematics CollegeCollege of Science and Engineering
Credit level (Normal year taken)SCQF Level 11 (Postgraduate) AvailabilityNot available to visiting students
SCQF Credits10 ECTS Credits5
SummaryThis course is available only to students on the 'Financial Operational Research' Degree Programme.

The need to produce models in Finance that are as close to reality as possible has required the use of advanced mathematics and stochastic analysis. This course explores the basic theory of Financial Mathematics and considers important applications in finance and investment. The following topics are covered.

Introduction to financial derivatives, futures and forwards, options, option strategies.

Revision of probability, expectation, variance, covariance
and correlation, binomial and normal distribution, central limit theorem.

Time value of money, compound interest and discounting, equation of value.

Duration, convexity and immunisation of a portfolio.

Compound interest functions including annuities certain.

General loan schedule, comparison of investment projects.

Binomial trees and basic option pricing techniques in discrete time, limit of the Cox-Ross-Rubinstein model.

Brief introduction to Brownian Motion and Ito's formula,
Black-Scholes option pricing formula and its properties.

Different types of security (equities, debentures, index-linked stocks), stocks issued by governments, public bodies and limited companies. The term to maturity, perpetuities, prices and yields allowing for the possibility of default. Taxation. Needs of different investors, particularly pension funds.
Course description Not entered
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Co-requisites
Prohibited Combinations Other requirements None
Course Delivery Information
Academic year 2014/15, Not available to visiting students (SS1) Quota:  None
Course Start Semester 1
Timetable Timetable
Learning and Teaching activities (Further Info) Total Hours: 100 ( Lecture Hours 27, Summative Assessment Hours 2, Programme Level Learning and Teaching Hours 2, Directed Learning and Independent Learning Hours 69 )
Assessment (Further Info) Written Exam 100 %, Coursework 0 %, Practical Exam 0 %
Additional Information (Assessment) See 'Breakdown of Assessment Methods' and 'Additional Notes' above.
Feedback Not entered
Exam Information
Exam Diet Paper Name Hours & Minutes
Main Exam Diet S1 (December)MATH11048 Financial Mathematics and Investment2:00
Learning Outcomes
1. Knowledge of basic financial concepts.
2. Ability to apply basic probability theory in financial models.
3. Understanding of issues in actuarial mathematics.
4. Understanding of basic financial derivative instruments.
5. Understanding of option pricing in discrete time.
6. Familiarity with the Black-Scholes formula.
7. Understanding of some practical aspects of equities and bonds.

Reading List
None
Additional Information
Course URL http://student.maths.ed.ac.uk
Graduate Attributes and Skills Not entered
Special Arrangements MSc Financial Operational Research students only.
KeywordsFMI
Contacts
Course organiserDr Goncalo Dos Reis
Tel: (0131 6)51 7677
Email: g.dosreis@ed.ac.uk
Course secretaryMrs Frances Reid
Tel: (0131 6)50 4883
Email: f.c.reid@ed.ac.uk
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