MA322 Half Unit
Mathematics of Finance and Valuation
This information is for the 2019/20 session.
Dr Albina Danilova COL.4.09
This course is available on the BSc in Financial Mathematics and Statistics, BSc in Mathematics and Economics and BSc in Mathematics with Economics. This course is available as an outside option to students on other programmes where regulations permit. This course is available with permission to General Course students.
Students must have completed Measure Theoretic Probability (MA321).
This course provides mathematical tools of stochastic calculus and develops the Black-Scholes theory of financial markets. It covers the following topics. Continuous-time stochastic processes, filtrations, stopping times, martingales, examples. Brownian motion and its properties. Construction of the Ito integral: simple integrands, Ito's isometry. Ito processes, Ito's formula, stochastic differential equations, Girsanov's theorem. Black-Scholes model: self-financing portfolios, risk neutral measure, risk neutral valuation of European contingent claims, Black-Scholes formula, Black-Scholes PDE, the Greeks. PDE techniques for derivative pricing. Implied volatility, basic ideas of calibration.
20 hours of lectures and 10 hours of classes in the LT.
Written answers to set problems will be expected on a weekly basis.
Lecture notes will be provided.
The following books may be useful.
T. Bjork, Arbitrage Theory in Continuous Time, Oxford Finance, 2004;
A. Etheridge, A Course in Financial Calculus, CUP, 2002;
M Baxter & A Rennie, Financial Calculus, CUP, 1996;
P. Wilmott, S. Howison & J. Dewynne, The Mathematics of Financial Derivatives, CUP, 1995;
J Hull, Options, Futures and Other Derivatives, 6th edition, Prentice-Hall, 2005.
D. Lamberton & B. Lapeyre, Introduction to stochastic calculus applied to finance, 2nd edition, Chapman & Hall, 2008.
S. E. Shreve, Stochastic Calculus for Finance. Volume I: The Binomial Asset Pricing Model. Springer, New York, 2004.
S. E. Shreve, Stochastic Calculus for Finance. Volume II: Continuous-Time Models. Springer, New York, 2004.
Exam (100%, duration: 2 hours).
Total students 2018/19: Unavailable
Average class size 2018/19: Unavailable
Capped 2018/19: No
Value: Half Unit
Personal development skills
- Problem solving
- Application of numeracy skills
- Specialist skills