ST439      Half Unit
Stochastics for Derivatives Modelling

This information is for the 2015/16 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; static vs dynamic option pricing; connection with PDEs; exotic options; volatility derivatives; mean-variance hedging.


20 hours of lectures and 10 hours of seminars in the LT.

During week 6 students will carry out group work, solving problems that will have been set in an earlier class.

Formative coursework

Weekly 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.

Indicative reading

Steven Shreve, Stochastic Calculus for Finance II: Continuous-Time Models, Springer.

Selected papers from scientific journals.

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 2014/15: 36

Average class size 2014/15: 36

Controlled access 2014/15: No

Value: Half Unit

Guidelines for interpreting course guide information

Personal development skills

  • Problem solving
  • Application of information skills
  • Specialist skills