This unit will introduce you to the mathematical theory of modern finance with the special emphasis on the valuation and hedging of financial derivatives, such as: forward contracts and options of European and American style. You will learn about the concept of arbitrage and how to model risk-free and risky securities. Topics covered by this unit include: notions of a martingale and a martingale measure, the fundamental theorems of asset pricing, complete and incomplete markets, the binomial options pricing model, discrete random walks and the Brownian motion, the Black-Scholes options pricing model and the valuation and heding of exotic options. Students completing this unit have been highly sought by the finance industry, which continues to need graduates with quantitative skills. Lectures in the mainstream unit are held concurrently with those of the corresponding advanced unit.
3x1-hr lectures; 1x1-hr tutorial/wk
2 x assignments (20%); 2-hr final exam (80%)
12 credit points of Intermediate Mathematics, including (MATH2070 or MATH2970)Prohibitions
MATH3975 or MATH3015 or MATH3933