MAS462 Financial Mathematics
|Semester 1, 2017/18||10 Credits|
|Lecturer:||Dr Moty Katzman||Home page||Reading List|
The discovery of the Capital Asset Pricing Model by William Sharpe in the 1960's and the Black-Scholes option pricing formula a decade later mark the beginning of a very fruitful interaction between mathematics and finance. The latter obtained new powerful analytical tools while the former saw its knowledge applied in new and surprising ways. (A key result used in the derivation of the Black-Scholes formula, Ito's Lemma, was first applied to guide missiles to their targets; hence the title `rocket science' applied to financial mathematics). This course describes the mathematical ideas behind these developments together with their applications in modern finance, and includes a computational project where students further explore some of the ideas of option pricing.
Prerequisites: MAS223 (Statistical Inference and Modelling)
Not with: MAS362 (Financial Mathematics)
No other modules have this module as a prerequisite.
- Introduction, arbitrage, forward and futures contracts
- Options, binomial trees, risk-neutral valuation
- Brownian motion and share prices, the Black-Scholes analysis
- Portfolio theory, the Capital Asset Pricing Model.
- To introduce students to the mathematical ideas and methods used in finance.
- To familiarise students with financial instruments such as shares, bonds, forward contracts, futures and options.
- To familiarise students with the notion of arbitrage and the notion of no-arbitrage pricing.
- To introduce the binomial tree and geometric Brownian motion models for stock prices.
- To familiarise students with the Black-Scholes option pricing method.
- To introduce the Capital Asset Pricing Model.
20 lectures, no tutorials
One formal 2.5 hour written examination [70%]. Format: 4 questions from 4. Project [30%].
Interest rates, bonds and yield curves. (2 lectures)
|B||Capinski and Zastawniak||Mathematics for Finance: An Introduction to Financial Engineering||332.0151 (C)||Blackwells||Amazon|
|B||Hull||Options, futures and other derivatives||332.645 (H)||Blackwells||Amazon|
|B||Sharpe||Portfolio theory and capital markets||332.6 (S)||Blackwells||Amazon|
(A = essential, B = recommended, C = background.)
Most books on reading lists should also be available from the Blackwells shop at Jessop West.