Course finder
Semester 2
Financial Mathematics (MATH10003)
Course Website
https://info.maths.ed.ac.uk/teaching.html
Subject
Mathematics
College
SCE
Credits
10
Normal Year Taken
3
Delivery Session Year
2023/2024
Pre-requisites
Visiting students are advised to check that they have studied the material covered in the syllabus of each prerequisite course before enrolling.
Course Summary
"Optional course for Honours Degrees involving Mathematics and/or Statistics; stipulated course for Honours in Economics and Statistics.This course is a basic introduction to finance. It starts by making an introduction to the value of money, interest rates and financial contracts, in particular, what are fair prices for contracts and why no-one uses fair prices in real life. Then, there is a review of probability theory followed by an introduction to financial markets in discrete time. In discrete time, one will see how the ideas of fair pricing apply to price contracts commonly found in stock exchanges. The next block focuses on continuous time finance and contains an introduction to the basic ideas of Stochastic calculus. The last chapter is an overview of Actuarial Finance. This course is a great introduction to finance theory and its purpose is to give students a broad perspective on the topic."
Course Description
Syllabus summary: (A) Introduction to financial markets and financial contracts; value of money; basic investment strategies and fundamental concepts of no-arbitrage. (B) Basic revision of probability theory (random variables, expectation, variance, covariance, correlation; Binomial distribution, normal distribution; Central limit theorem and transformation of distributions). (C) The binomial tree market model; valuation of contracts (European and American); No-arbitrage pricing theory via risk neutral probabilities and via portfolio strategies. (D) Introduction to stochastic analysis: Brownian motion, Ito integral, Ito Formula, stochastic differential equations; Black-Scholes model and Option pricing within Black-Scholes model. Black-Scholes PDE (E) Time value of money, compound interest rates and present value of future payments. Interest income. The equation of value. Annuities. The general loan schedule. Net present values. Comparison of investment projects.
Assessment Information
Written Exam 95%, Coursework 5%, Practical Exam 0%
Additional Assessment Information
Coursework 5%, Examination 95%
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