Postgraduate Course: Risk-Neutral Asset Pricing (MATH11118)

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	15	ECTS Credits	7.5
Summary	Aims: To provide solid mathematical foundations for pricing derivative products in financial markets, highlighting the points where the idealized and the realistic diverge. Syllabus: - Introduction to bonds, futures and forward contracts. - Options : basics, strategies, profit diagrams and put-call parity - Risk-neutral valuation of contingent claims. Pricing PDEs. - Some important option types in the Black-Scholes setting. Parameter sensitivity (Greeks). - Incomplete markets, pricing and hedging. - The term structure of interest rates: short rate models (Vasicek, CIR) and the HJM framework. - Pricing of credit derivatives.
Course description	Not entered

Entry Requirements (not applicable to Visiting Students)
Pre-requisites		Co-requisites
Prohibited Combinations		Other requirements	None

Course Delivery Information
Not being delivered

Learning Outcomes
- Familiarity with the fundamental tools of no-arbitrage pricing (Girsanov change of measure, martingale representation). - Knowledge of most important option types (European, American, exotic). - Familiarity with the PDE methodology for computing option prices. - Understanding the essentials of short rate and forward rate models (i.e. HJM). - Familiarity with the basic credit derivatives and with the problems in their pricing (default sensitivity). - Understanding the main uses of derivatives in hedging, arbitrage and speculations.