2008/09 Undergraduate Module Catalogue
MATH3733 Stochastic Financial Modelling
15 creditsClass Size: 100
Module manager: Professor A. Yu Veretennikov
Email: veretenn@maths.leeds.ac.uk
Taught: Semester 1 (Sep to Jan) View Timetable
Year running 2008/09
Pre-requisites
MATH2750 | Introduction to Markov Processes |
This module is approved as an Elective
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, hedging, arbitrage.
2. Discrete time stochastic processes. Conditional expectation, Markov chains, measure theory, filtrations, martingales, Doub-Meyer decomposition.
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.
5. Continuous time finance. Geometric Brownian motion, asset prices, volatility, continuous Black-Scholes theorem.
Teaching methods
Delivery type | Number | Length hours | Student hours |
Example Class | 7 | 1.00 | 7.00 |
Lecture | 26 | 1.00 | 26.00 |
Practical | 3 | 1.00 | 3.00 |
Private study hours | 114.00 | ||
Total Contact hours | 36.00 | ||
Total hours (100hr per 10 credits) | 150.00 |
Methods 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) | 3 hr | 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: 01/04/2009
Browse Other Catalogues
- Undergraduate module catalogue
- Taught Postgraduate module catalogue
- Undergraduate programme catalogue
- Taught Postgraduate programme catalogue
Errors, omissions, failed links etc should be notified to the Catalogue Team.PROD