Postgraduate Course: Risk-Neutral Asset Pricing (MATH11157)
|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
|Summary||To provide solid mathematical foundations for pricing derivative products in financial markets, highlighting the points where the idealized and the realistic diverge.
- 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.
Entry Requirements (not applicable to Visiting Students)
||Other requirements|| None
Course Delivery Information
|Academic year 2017/18, Not available to visiting students (SS1)
|Learning and Teaching activities (Further Info)
Lecture Hours 18,
Seminar/Tutorial Hours 4,
Summative Assessment Hours 2,
Programme Level Learning and Teaching Hours 2,
Directed Learning and Independent Learning Hours
|Assessment (Further Info)
|Additional Information (Assessment)
||Hours & Minutes
|Main Exam Diet S2 (April/May)||Risk-Neutral Asset Pricing (MATH11157)||2:00|
| 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.
|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.
|Graduate Attributes and Skills
||MSc Financial Modelling and Optimization and MSc Computational Mathematical Finance students only.
|Course organiser||Dr Lukasz Szpruch
Tel: (0131 6)50 5742
|Course secretary||Ms Hannah Burley
Tel: (0131 6)50 4885