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DEGREE REGULATIONS & PROGRAMMES OF STUDY 2015/2016

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DRPS : Course Catalogue : School of Mathematics : Mathematics

Postgraduate Course: Discrete-Time Finance (MATH11153)

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
SummaryTo introduce, in a discrete time setting, the basic probabilistic ideas and results needed for the conceptual understanding of the theory of stochastic process and its application to financial derivative pricing.
Course description Introduction to background probability theory.
Conditional expectation.
Discrete-time martingales, sub- and supermartingales.
Stopping Times, Optional Stopping Theorem, Snell Envelopes.
Arbitrage and martingales, risk neutral measures.
Complete markets and discrete option pricing.
The binary tree model of Cox, Ross and Rubinstein for European and American option pricing.
Dividends in the binomial models.
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Co-requisites
Prohibited Combinations Other requirements None
Course Delivery Information
Academic year 2015/16, 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 18, Seminar/Tutorial Hours 4, Programme Level Learning and Teaching Hours 2, Directed Learning and Independent Learning Hours 76 )
Assessment (Further Info) Written Exam 100 %, Coursework 0 %, Practical Exam 0 %
Additional Information (Assessment) Examination 100%
Feedback Not entered
Exam Information
Exam Diet Paper Name Hours & Minutes
Main Exam Diet S1 (December)Discrete-Time Finance2:00
Learning Outcomes
It is intended that students will demonstrate
- conceptual understanding of conditional expectations,
- thorough understanding of the Cox-Ross-Rubinstein binomial model and its application to option pricing problems, - conceptual understanding of the role of the risk-neutral pricing measure, - conceptual understanding of the role of equivalent martingale measures in financial mathematics,
- conceptual understanding of the Optional Stopping problem,
by answering relevant exam questions.
Reading List
Williams, D. (1991). Probability with Martingales. CUP.
Bingham, N.H. & Kiesel, R. (2004). Risk-Neutral Valuation. Pricing and Hedging of Financial Derivatives. Springer.
Baxter, M. & Rennie, A. (1996). 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, MSc Financial Modelling and Optimization and MSc Computational Mathematical Finance students only.
KeywordsDTF
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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© Copyright 2015 The University of Edinburgh - 18 January 2016 4:25 am