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DEGREE REGULATIONS & PROGRAMMES OF STUDY 2015/2016

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DRPS : Course Catalogue : School of Mathematics : Mathematics

Postgraduate Course: Stochastic Analysis in Finance II (MATH11077)

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 Credits7.5 ECTS Credits3.75
SummaryThis course aims to provide a good and rigorous understanding of the mathematics used in derivative pricing and to enable students to understand where the assumptions in the models break down.
Course description The Black-Scholes model, self-financing strategies, pricing and hedging options, European and American options.
Option pricing and partial differential equations; Kolmogorov equations.
Further topics: dividends, reflection principle, exotic options, options involving more than one risky asset, stochastic volatility models.
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Co-requisites
Prohibited Combinations Other requirements MSc Financial Mathematics and MSc Financial Modelling and Optimization students only.
Course Delivery Information
Not being delivered
Learning Outcomes
- be able to apply the theory of stochastic calculus to problems involving vanilla options
- understand the martingale representation theorem and its role in financial applications
- be able to apply the theory of stochastic calculus to problems involving exotic options
- conceptual understanding of the role of martingales in the theory of derivative pricing
- conceptual understanding of the role of equivalent martingale measures in financial mathematics
- conceptual understanding of the stochastic Ito integral and the connection to self-financing strategies
Reading List
Karatzas, I. & Shreve, S. (1988). Brownian Motion and Stochastic Calculus. Springer.
Baxter, M. & Rennie, A. (1996). Financial Calculus. CUP.
Etheridge, A. (2002). A Course in Financial Calculus. CUP.
Lamberton, D. & Lapeyre, B. (1996). Introduction to Stochastic Calculus Applied to Finance. Chapman & Hall.
Additional Information
Graduate Attributes and Skills Not entered
Special Arrangements MSc Financial Mathematics and MSc Financial Modelling and Optimization students only.
Study Abroad Not Applicable.
KeywordsSAF II
Contacts
Course organiserDr Sotirios Sabanis
Tel: (0131 6)50 5084
Email: S.Sabanis@ed.ac.uk
Course secretaryMr Thomas Robinson
Tel: (0131 6)50 4885
Email: Thomas.Robinson@ed.ac.uk
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