Postgraduate Course: Discrete-Time Finance (MATH11153)
Course Outline
| School | School of Mathematics |
College | College of Science and Engineering |
| Credit level (Normal year taken) | SCQF Level 11 (Postgraduate) |
Availability | Not available to visiting students |
| SCQF Credits | 10 |
ECTS Credits | 5 |
| Summary | To introduce, in a discrete time setting, the basic probabilistic ideas and results needed for the conceptual understanding of the theory of stochastic process and its application to financial derivative pricing. |
| Course description |
Introduction to background probability theory.
Conditional expectation.
Discrete-time martingales, sub- and supermartingales.
Stopping Times, Optional Stopping Theorem, Snell Envelopes.
Arbitrage and martingales, risk neutral measures.
Complete markets and discrete option pricing.
The binary tree model of Cox, Ross and Rubinstein for European and American option pricing.
Dividends in the binomial models.
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Entry Requirements (not applicable to Visiting Students)
| Pre-requisites |
|
Co-requisites | |
| Prohibited Combinations | |
Other requirements | None |
Course Delivery Information
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| Academic year 2015/16, Not available to visiting students (SS1)
|
Quota: None |
| Course Start |
Semester 1 |
Timetable |
Timetable |
| Learning and Teaching activities (Further Info) |
Total Hours:
100
(
Lecture Hours 18,
Seminar/Tutorial Hours 4,
Programme Level Learning and Teaching Hours 2,
Directed Learning and Independent Learning Hours
76 )
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| Assessment (Further Info) |
Written Exam
100 %,
Coursework
0 %,
Practical Exam
0 %
|
| Additional Information (Assessment) |
Examination 100% |
| Feedback |
Not entered |
| Exam Information |
| Exam Diet |
Paper Name |
Hours & Minutes |
|
| Main Exam Diet S1 (December) | Discrete-Time Finance | 2:00 | |
Learning Outcomes
It is intended that students will demonstrate
- conceptual understanding of conditional expectations,
- thorough understanding of the Cox-Ross-Rubinstein binomial model and its application to option pricing problems, - conceptual understanding of the role of the risk-neutral pricing measure, - conceptual understanding of the role of equivalent martingale measures in financial mathematics,
- conceptual understanding of the Optional Stopping problem,
by answering relevant exam questions.
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Reading List
Williams, D. (1991). Probability with Martingales. CUP.
Bingham, N.H. & Kiesel, R. (2004). Risk-Neutral Valuation. Pricing and Hedging of Financial Derivatives. Springer.
Baxter, M. & Rennie, A. (1996). Financial Calculus. CUP.
Lamberton, D. & Lapeyre, B. (1996). Introduction to Stochastic Calculus Applied to Finance. Chapman & Hall. |
Additional Information
| Graduate Attributes and Skills |
Not entered |
| Special Arrangements |
MSc Financial Mathematics, MSc Financial Modelling and Optimization and MSc Computational Mathematical Finance students only. |
| Keywords | DTF |
Contacts
| Course organiser | Dr Sotirios Sabanis
Tel: (0131 6)50 5084
Email: |
Course secretary | Mrs Kathryn Mcphail
Tel: (0131 6)51 4351
Email: |
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