ST439      Half Unit
Stochastics for Derivatives Modelling

This information is for the 2019/20 session.

Teacher responsible

Dr Luciano Campi COL 5.04


This course is compulsory on the MSc in Quantitative Methods for Risk Management. This course is available on the MSc in Statistics (Financial Statistics), MSc in Statistics (Financial Statistics) (LSE and Fudan) 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; Dupire's formula.


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

Week 6 will be used as a revision week.

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 summer exam period.

Student performance results

(2015/16 - 2017/18 combined)

Classification % of students
Distinction 24.8
Merit 32.2
Pass 28.1
Fail 14.9

Key facts

Department: Statistics

Total students 2018/19: 37

Average class size 2018/19: 37

Controlled access 2018/19: No

Value: Half Unit

Guidelines for interpreting course guide information

Personal development skills

  • Problem solving
  • Application of information skills
  • Specialist skills