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 |
|
Co-requisites | |
| Prohibited Combinations | |
Other requirements | None |
Course Delivery Information
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| Academic year 2015/16, Not available to visiting students (SS1)
|
Quota: None |
| Course Start |
Semester 2 |
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 S2 (April/May) | Risk-Neutral Asset Pricing (MATH11157) | 2:00 | |
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.
|
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 David Siska
Tel: (0131 6)51 9091
Email: D.Siska@ed.ac.uk |
Course secretary | Mr Thomas Robinson
Tel: (0131 6)50 4885
Email: Thomas.Robinson@ed.ac.uk |
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