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DRPS : Course Catalogue : School of Mathematics : Mathematics

Postgraduate Course: Risk-Neutral Asset Pricing (MATH11118)

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 Credits15 ECTS Credits7.5
SummaryAims:
To provide solid mathematical foundations for pricing derivative products in financial markets, highlighting the points where the idealized and the realistic diverge.

Syllabus:
- Introduction to bonds, futures and forward contracts.
- Options : basics, strategies, profit diagrams and put-call parity
- Risk-neutral valuation of contingent claims. Pricing PDEs.
- Some important option types in the Black-Scholes setting. Parameter sensitivity (Greeks).
- Incomplete markets, pricing and hedging.
- The term structure of interest rates: short rate models (Vasicek, CIR) and the HJM framework.
- Pricing of credit derivatives.
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 2
Timetable Timetable
Learning and Teaching activities (Further Info) Total Hours: 150 ( Lecture Hours 35, Summative Assessment Hours 2, Programme Level Learning and Teaching Hours 3, Directed Learning and Independent Learning Hours 110 )
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 S2 (April/May)Risk-Neutral Asset Pricing (MATH11118) 2:00
Learning Outcomes
- Familiarity with the fundamental tools of no-arbitrage pricing (Girsanov change of measure, martingale representation).
- Knowledge of most important option types (European, American, exotic).
- Familiarity with the PDE methodology for computing option prices.
- Understanding the essentials of short rate and forward rate models (i.e. HJM).
- Familiarity with the basic credit derivatives and with the problems in their pricing (default sensitivity).
- Understanding the main uses of derivatives in hedging, arbitrage and speculations.
Reading List
None
Additional Information
Graduate Attributes and Skills Not entered
Special Arrangements MSc Financial Modelling and Optimization students only.
KeywordsRNAP
Contacts
Course organiserDr David Siska
Tel:
Email: D.Siska@ed.ac.uk
Course secretaryMrs Kathryn Mcphail
Tel: (0131 6)50 4885
Email: k.mcphail@ed.ac.uk
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