Undergraduate Course: Financial Mathematics (MATH10003)
Course Outline
School  School of Mathematics 
College  College of Science and Engineering 
Credit level (Normal year taken)  SCQF Level 10 (Year 3 Undergraduate) 
Availability  Available to all students 
SCQF Credits  10 
ECTS Credits  5 
Summary  "Optional course for Honours Degrees involving Mathematics and/or Statistics; stipulated course for Honours in Economics and Statistics.
This course is a basic introduction to finance. It starts by making an introduction to the value of money, interest rates and financial contracts, in particular, what are fair prices for contracts and why noone uses fair prices in real life. Then, there is a review of probability theory followed by an introduction to financial markets in discrete time. In discrete time, one will see how the ideas of fair pricing apply to price contracts commonly found in stock exchanges. The next block focuses on continuous time finance and contains an introduction to the basic ideas of Stochastic calculus. The last chapter is an overview of Actuarial Finance. This course is a great introduction to finance theory and its purpose is to give students a broad perspective on the topic."

Course description 
Syllabus summary:
(A) Introduction to financial markets and financial contracts; value of money; basic investment strategies and fundamental concepts of noarbitrage.
(B) Basic revision of probability theory (random variables, expectation, variance, covariance, correlation; Binomial distribution, normal distribution; Central limit theorem and transformation of distributions).
(C) The binomial tree market model; valuation of contracts (European and American); Noarbitrage pricing theory via risk neutral probabilities and via portfolio strategies.
(D) Introduction to stochastic analysis: Brownian motion, Ito integral, Ito Formula, stochastic differential equations; BlackScholes model and Option pricing within BlackScholes model. BlackScholes PDE
(E) Time value of money, compound interest rates and present value of future payments. Interest income. The equation of value. Annuities. The general loan schedule. Net present values. Comparison of investment projects.

Information for Visiting Students
Prerequisites  None 
High Demand Course? 
Yes 
Course Delivery Information

Academic year 2015/16, Available to all students (SV1)

Quota: None 
Course Start 
Semester 1 
Timetable 
Timetable 
Learning and Teaching activities (Further Info) 
Total Hours:
100
(
Lecture Hours 22,
Summative Assessment Hours 2,
Programme Level Learning and Teaching Hours 2,
Directed Learning and Independent Learning Hours
74 )

Assessment (Further Info) 
Written Exam
95 %,
Coursework
5 %,
Practical Exam
0 %

Additional Information (Assessment) 
Coursework 5%, Examination 95%

Feedback 
Not entered 
Exam Information 
Exam Diet 
Paper Name 
Hours & Minutes 

Main Exam Diet S1 (December)  MATH10003 Financial Mathematics  2:00  

Academic year 2015/16, Partyear visiting students only (VV1)

Quota: None 
Course Start 
Semester 1 
Timetable 
Timetable 
Learning and Teaching activities (Further Info) 
Total Hours:
100
(
Lecture Hours 22,
Summative Assessment Hours 2,
Programme Level Learning and Teaching Hours 2,
Directed Learning and Independent Learning Hours
74 )

Assessment (Further Info) 
Written Exam
95 %,
Coursework
5 %,
Practical Exam
0 %

Additional Information (Assessment) 
Coursework 5%, Examination 95%

Feedback 
Not entered 
Exam Information 
Exam Diet 
Paper Name 
Hours & Minutes 

Main Exam Diet S1 (December)  MATH10003 Financial Mathematics  2:00  
Learning Outcomes
On completion of this course, the student will be able to:
 Knowledge of basic financial concepts and financial derivative instruments.
 Fundamental understanding of noArbitrage pricing concept.
 Ability to apply basic probability theory to option pricing in discrete time in the context of simple financial models.
 Fundamental knowledge of Stochastic analysis (Ito Formula and Ito Integration) and the BlackScholes formula.
 Introduction to actuarial mathematics.

Reading List
http://www.readinglists.co.uk 
Contacts
Course organiser  Dr Goncalo Dos Reis
Tel: (0131 6)51 7677
Email: g.dosreis@ed.ac.uk 
Course secretary  Mr Thomas Robinson
Tel: (0131 6)50 4885
Email: Thomas.Robinson@ed.ac.uk 

