Stochastic and Actuarial Methods in Finance
This information is for the 2019/20 session.
Prof Pauline Barrieu COL 6.03 and Dr Erik Baurdoux COL 6.04
This course is available on the BSc in Actuarial Science, BSc in Business Mathematics and Statistics, BSc in Mathematics, Statistics, and Business and BSc in Statistics with Finance. This course is not available as an outside option. This course is available to General Course students.
Students must have completed:
EITHER Probability, Distribution Theory and Inference (ST202) OR Probability and Distribution Theory (ST206)
AND Stochastic Processes (ST302).
Theories of financial market behaviour. Applications of stochastic processes and actuarial models in finance. Utility theory. Stochastic dominance and portfolio selection. Measures of investment risk. Mean-variance portfolio theory. Single and multifactor models. The Capital Asset Pricing Model. The efficient market hypothesis.
Introduction to financial markets. Model-free relationships.
Stochastic models for security prices and interest rates and estimating their parameters. Option pricing: general framework in discrete and continuous time, the Black-Scholes analysis and numerical procedures (binomial models and Cox-Ross-Rubinstein models). The term structure of interest rates: the Vasicek, the Cox-Ingersoll-Ross and other models. Introduction to credit risk.
20 hours of lectures and 10 hours of seminars in the MT. 20 hours of lectures and 10 hours of seminars in the LT.
Students will work on and submit formative coursework towards the end of MT and a second set of formative coursework towards the end of LT. Feedback and solutions will be provided
Two sets of hand-in exercises will also be given during the year.
N H Bingham & R Kiesel, Risk Neutral Valuation; A Cerny, Mathematical Techniques in Finance: Tools for Incomplete Markets; J Hull, Options, Futures & Other Derivatives; R Jarrow & S Turnbull, Derivative Securities; D Luenberger, Investment Science; Institute of Actuaries core reading notes, Subject CT8.
Exam (100%, duration: 3 hours) in the summer exam period.
Total students 2018/19: 77
Average class size 2018/19: 77
Capped 2018/19: No
Value: One Unit
Personal development skills
- Problem solving
- Application of numeracy skills
- Specialist skills