ST439      Half Unit
Stochastics for Derivatives Modelling

This information is for the 2013/14 session.

Teacher responsible

Dr Beatrice Acciaio COL 6.02


This course is compulsory on the MSc in Risk and Stochastics. This course is available on the MSc in Financial Mathematics, MSc in Statistics (Financial Statistics) and MSc in Statistics (Financial Statistics) (Research). This course is available with permission as an outside option to students on other programmes where regulations permit.


Students must have completed Stochastic Processes (ST409).

Course content

Valuation and hedging of derivative securities: General principles of mathematical finance. Asset price models. Option pricing by bilateral Laplace transforms as well as integro-partial differential equations. Utility indifference valuation. Minimal entropy martingale measures. Foellmer-Sondermann optimal hedging. Entropic hedging.


30 hours of seminars in the LT.

Formative coursework

A weekly set of homework will be set. Students are not expected to submit this homework but will go over the exercises in the following seminar with the lecturer. Students will also complete one or two sets of formative coursework during the year which will be marked. Feedback will be provided.

Indicative reading

T. Rheinlander, Derivatives in Insurance and Finance, lecture notes (2005)
Selected papers from scientific journals.
Steven Shreve, Stochastic Calculus for Finance II: Continuous-Time Models, Springer
Thorsten Rheinlander and Jenny Sexton, Hedging Derivatives, World Scientific


Exam (100%, duration: 2 hours) in the main exam period.

Key facts

Department: Statistics

Total students 2012/13: 40

Average class size 2012/13: 40

Value: Half Unit

Guidelines for interpreting course guide information