ST213      Half Unit
Introduction to Pricing, Hedging and Optimization

This information is for the 2025/26 session.

Course Convenor

David Itkin

Availability

This course is compulsory on the BSc in Financial Mathematics and Statistics. This course is available on the Erasmus Reciprocal Programme of Study and Exchange Programme for Students from University of California, Berkeley. This course is freely available as an outside option to students on other programmes where regulations permit. It does not require permission. This course is available with permission to General Course students.

Requisites

Co-requisites:

Students must complete MA203 and ST202 either before taking this course or in the same year as this course.

Course content

This course introduces the concepts of valuation, hedging and portfolio selection in a discrete-time environment. Towards the end, it introduces continuous-time markets in a heuristic fashion. It covers the following topics:

 

• The binomial model; pricing and replication.
• Trinomial model and incompleteness, arbitrage-free price intervals.
• General discrete-time models and the fundamental theorems.
• Portfolio optimization and hedging.
• Multi-period models and backwards induction methods.
• Passage to continuous time Black & Scholes model.

Teaching

10 hours of seminars and 20 hours of lectures in the Winter Term.

This course has a reading week in Week 6 of Winter Term.

Formative assessment

Students will be expected to produce 9 problem sets in the WT.

Certain problem sets will be returned with feedback.

 

Indicative reading

Lecture notes will be provided.

Assessment

Exam (80%), duration: 120 Minutes, reading time: 15 minutes in the Spring exam period

Problem sets (20%)


Key facts

Department: Statistics

Course Study Period: Winter Term

Unit value: Half unit

FHEQ Level: Level 5

CEFR Level: Null

Total students 2024/25: 49

Average class size 2024/25: 25

Capped 2024/25: No
Guidelines for interpreting course guide information

Course selection videos

Some departments have produced short videos to introduce their courses. Please refer to the course selection videos index page for further information.

Personal development skills

  • Self-management
  • Problem solving
  • Communication
  • Application of numeracy skills
  • Specialist skills