# DEGREE REGULATIONS & PROGRAMMES OF STUDY 2021/2022

### Information in the Degree Programme Tables may still be subject to change in response to Covid-19

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DRPS : Course Catalogue : School of Mathematics : Mathematics

# Postgraduate Course: Financial Mathematics and Investment (MATH11048)

 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 This course is available only to students on the 'Financial Operational Research' Degree Programme. The need to produce models in Finance that are as close to reality as possible has required the use of advanced mathematics and stochastic analysis. This course explores the basic theory of Financial Mathematics and considers important applications in finance and investment. The following topics are covered. Introduction to financial derivatives, futures and forwards, options, option strategies. Revision of probability, expectation, variance, covariance and correlation, binomial and normal distribution, central limit theorem. Time value of money, compound interest and discounting, equation of value. Duration, convexity and immunisation of a portfolio. Compound interest functions including annuities certain. General loan schedule, comparison of investment projects. Binomial trees and basic option pricing techniques in discrete time, limit of the Cox-Ross-Rubinstein model. Brief introduction to Brownian Motion and Ito's formula, Black-Scholes option pricing formula and its properties. Different types of security (equities, debentures, index-linked stocks), stocks issued by governments, public bodies and limited companies. The term to maturity, perpetuities, prices and yields allowing for the possibility of default. Taxation. Needs of different investors, particularly pension funds. Course description Not entered
 Pre-requisites Co-requisites Prohibited Combinations Other requirements None
 Not being delivered
 1. Knowledge of basic financial concepts. 2. Ability to apply basic probability theory in financial models. 3. Understanding of issues in actuarial mathematics. 4. Understanding of basic financial derivative instruments. 5. Understanding of option pricing in discrete time. 6. Familiarity with the Black-Scholes formula. 7. Understanding of some practical aspects of equities and bonds.
 None
 Course URL http://student.maths.ed.ac.uk Graduate Attributes and Skills Not entered Special Arrangements MSc Financial Operational Research students only. Keywords FMI
 Course organiser Dr Goncalo Dos Reis Tel: (0131 6)51 7677 Email: g.dosreis@ed.ac.uk Course secretary Mrs Frances Reid Tel: (0131 6)50 4883 Email: f.c.reid@ed.ac.uk
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