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DRPS : Course Catalogue : School of Mathematics : Mathematics

Postgraduate Course: Numerical Probability and Monte Carlo (MATH11202)

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
SummaryThe course deals with a rigorous introduction to Monte Carlo methods, and numerical methods to find solutions to stochastic differential equations. These methods are immensely important to understanding financial options price sensitivities (Greeks), and so applications to the techniques discussed will be to finance. Students will be expected to understand both the theoretical content, but also to be able to implement numerical techniques in a programming language such as Matlab.
Course description Topics covered in the course include: Random number generation, pseudorandom numbers, inversion method, acceptance/rejection method, Box-Muller method, basic Monte Carlo, quasi Monte Carlo. Variance reduction techniques such as: importance sampling, control variates and antithetic random variable, Option price sensitivities (Greeks): pathwise, likelihood and finite difference approaches. Burkholder-Davis-Gundy inequality and Gronwall' s lemma. Strong and weak approximations of solutions to SDEs. Euler's approximations and Milstein's scheme. Order of accuracy of numerical approximations. Higher order schemes, accelerated convergence. Weak approximations of SDEs via numerical solutions of PDEs.
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Co-requisites Students MUST also take: Stochastic Analysis in Finance (MATH11154) OR Probability, Measure & Finance (MATH10024)
Prohibited Combinations Other requirements Students not on a mathematics MSc programme MUST have passed (Probability MATH08066 or Probability with Applications MATH08067) AND Several Variable Calculus and Differential Equations (MATH08063) AND Fundamentals of Pure Mathematics (MATH08064)

Additionally, such students MUST also take: Probability, Measure & Finance (MATH10024)
Course Delivery Information
Academic year 2020/21, 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 22, Supervised Practical/Workshop/Studio Hours 5, Summative Assessment Hours 2, Programme Level Learning and Teaching Hours 2, Directed Learning and Independent Learning Hours 69 )
Assessment (Further Info) Written Exam 80 %, Coursework 20 %, Practical Exam 0 %
Additional Information (Assessment) Coursework :20%
Examination :80%
Feedback Not entered
Exam Information
Exam Diet Paper Name Hours & Minutes
Main Exam Diet S2 (April/May)Numerical Probability and Monte Carlo (MATH11202)2:00
Learning Outcomes
On completion of this course, the student will be able to:
  1. Be able to simulate random numbers from standard distributions.
  2. Be able to use Monte-Carlo techniques to analyse stochastic differential equations.
  3. Be able to numerically price basic financial options.
  4. Be able to use various numerical schemes to simulate solutions to stochastic differential equations.
  5. Be able to use variance-reduction techniques, and to be able to explain their importance.
Reading List
Ross, S. M. (2002). Simulation (3rd ed.). Academic Press.
Boyle P, Broadie M, and Glasserman P (1997). Monte Carlo methods for security pricing, Journal of Economic Dynamics and Control, 4, 1267-1321. . Hull, J. C. (2002). Options, Futures and Other Derivatives, 5th edition. Prentice Hall.
Glasserman, P. (2004). Monte Carlo methods in Financial Engineering. Springer.
Asmussen, S., Glynn, P. W., (2007) Stochastic Simulation: Algorithms and Analysis, Springer.
Kloeden, P. E., and Platen, E. (1999) Numerical Solution of Stochastic Differential Equations, Springer.
Additional Information
Graduate Attributes and Skills Not entered
Course organiserDr Goncalo Dos Reis
Tel: (0131 6)51 7677
Course secretaryMiss Gemma Aitchison
Tel: (0131 6)50 9268
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