2015/16 Undergraduate Module Catalogue
MATH3733 Stochastic Financial Modelling
15 creditsClass Size: 150
Module manager: Prof A Veretennikov
Email: A.Veretennikov@leeds.ac.uk
Taught: Semester 1 (Sep to Jan) View Timetable
Year running 2015/16
Pre-requisites
MATH2750 | Introduction to Markov Processes |
This module is approved as a discovery module
Module summary
Financial investments such as stocks and shares are risky: their value can go down as well as up. To compensate for the risk in a fair market, a discount is needed. This module will develop the necessary probabilistic tools to enable investors to value such assets.Objectives
To develop a general methodology based on stochastic analysis for the pricing of financial assets in risky financial markets.By the end of this module, students should be able to:
a) describe the main instruments available in financial markets;
b) use filtrations and martingales to model any evolving state of knowledge in a fair market;
c) use appropriate stochastic methods to evaluate return rates on risky assets;
d) value options using the Black-Scholes theorem.
Syllabus
Financial investments such as stocks and shares are risky: their value can go down as well as up. To compensate for the risk in a fair market, a discount is needed.
This module will develop the necessary probabilistic tools to enable investors to value such assets.
Topics included:
1. Economic background. Markets, options, portfolios, arbitrage.
2. Discrete time stochastic processes. Conditional expectation, Markov chains, measure theory, filtrations, martingales.
3. Discrete time finance. Asset pricing in a risky market, viability, discrete Black-Scholes formula, equivalent martingale measure.
4. Continuous time stochastic processes. Brownian motion, stochastic integrals, Ito calculus, Cameron-Martin-Girsanov theorem.
5. Continuous time finance. Geometric Brownian motion, asset prices, volatility, continuous Black-Scholes theorem.
Teaching methods
Delivery type | Number | Length hours | Student hours |
Lecture | 33 | 1.00 | 33.00 |
Practical | 1 | 2.00 | 2.00 |
Private study hours | 115.00 | ||
Total Contact hours | 35.00 | ||
Total hours (100hr per 10 credits) | 150.00 |
Private study
Studying and revising of course material.Completing of assignments and assessments.
Opportunities for Formative Feedback
Regular problem solving assignmentsMethods of assessment
Coursework
Assessment type | Notes | % of formal assessment |
In-course Assessment | . | 20.00 |
Total percentage (Assessment Coursework) | 20.00 |
Normally resits will be assessed by the same methodology as the first attempt, unless otherwise stated
Exams
Exam type | Exam duration | % of formal assessment |
Standard exam (closed essays, MCQs etc) | 2 hr 30 mins | 80.00 |
Total percentage (Assessment Exams) | 80.00 |
Normally resits will be assessed by the same methodology as the first attempt, unless otherwise stated
Reading list
The reading list is available from the Library websiteLast updated: 16/04/2015
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