Postgraduate Course: Risk-Neutral Asset Pricing (MATH11118)
Course Outline
| School | School of Mathematics |
College | College of Science and Engineering |
| Course type | Standard |
Availability | Not available to visiting students |
| Credit level (Normal year taken) | SCQF Level 11 (Postgraduate) |
Credits | 15 |
| Home subject area | Mathematics |
Other subject area | None |
| Course website |
None |
Taught in Gaelic? | No |
| Course description | 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. |
Entry Requirements (not applicable to Visiting Students)
| Pre-requisites |
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Co-requisites | |
| Prohibited Combinations | |
Other requirements | None |
| Additional Costs | None |
Course Delivery Information
| Not being delivered |
Summary of Intended 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. |
Assessment Information
| Examination 100% |
Special Arrangements
| MSc Financial Modelling and Optimization students only. |
Additional Information
| Academic description |
Not entered |
| Syllabus |
Not entered |
| Transferable skills |
Not entered |
| Reading list |
Not entered |
| Study Abroad |
Not entered |
| Study Pattern |
Not entered |
| Keywords | Not entered |
Contacts
| Course organiser | Dr Sotirios Sabanis
Tel: (0131 6)50 5084
Email: |
Course secretary | Mrs Kathryn Mcphail
Tel: (0131 6)50 4885
Email: |
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