Postgraduate Course: Risk-Neutral Asset Pricing (MATH11157)
Course Outline
School | School of Mathematics |
College | College of Science and Engineering |
Credit level (Normal year taken) | SCQF Level 11 (Postgraduate) |
Availability | Not available to visiting students |
SCQF Credits | 10 |
ECTS Credits | 5 |
Summary | To provide solid mathematical foundations for pricing derivative products in financial markets, highlighting the points where the idealized and the realistic diverge. |
Course description |
- 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.
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Entry Requirements (not applicable to Visiting Students)
Pre-requisites |
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Co-requisites | |
Prohibited Combinations | |
Other requirements | None |
Course Delivery Information
Not being delivered |
Learning Outcomes
It is intended that students will demonstrate
- 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,
by answering relevant exam questions.
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Reading List
Bingham, N.H. & Kiesel, R. (2004). Risk-Neutral Valuation. Pricing and Hedging of Financial Derivatives. Springer.
Lamberton, D. & Lapeyre, B. (1996). Introduction to Stochastic Calculus Applied to Finance. Chapman & Hall.
Williams, D. (1991). Probability with Martingales. CUP. |
Additional Information
Graduate Attributes and Skills |
Not entered |
Special Arrangements |
MSc Financial Modelling and Optimization and MSc Computational Mathematical Finance students only. |
Keywords | RNAP |
Contacts
Course organiser | Dr Sotirios Sabanis
Tel: (0131 6)50 5084
Email: S.Sabanis@ed.ac.uk |
Course secretary | Mrs Kathryn Mcphail
Tel: (0131 6)50 4885
Email: k.mcphail@ed.ac.uk |
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