MATH40740 Advanced Financial Models

Academic Year 2023/2024

The aim of this module is to apply the methods of stochastic calculus to no-arbitrage theory, interest-rate modelling, equity, inflation and applications to pricing. Topics include: a review of Black-Scholes option pricing and the change of measure technique; bonds and interest rates (bank account and short rates, zero coupon bonds and interest rate curves, coupon bonds, swap and yields, yield and duration); multi-dimensional Itô calculus (review of 1-dimensional case, multi-dimensional Itô formulae, correlated Wiener processes); martingale models for the short rate (one- and two-factor short-rate models, classical time-homogeneous short rate models e.g. Vasicek and Dothan models, Hull-White extended Vasicek model, two-additive-factor Gaussian model G2++); forward rate models and market models (forward rate models e.g. Heath-Jarrow-Morton framework, market models e.g. the LIBOR market model); main equity models (Heston, Variance gamma); jarrow-Yildirim inflation model.

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Curricular information is subject to change

Learning Outcomes:

On successful completion of this module, the student is expected to be able to understand the definitions, theorems and examples covered in all of the topics listed above, and carry out associated computations.

Student Effort Hours: 
Student Effort Type Hours
Lectures

48
Tutorial

12
Autonomous Student Learning

160
Total

220
Approaches to Teaching and Learning:
Lectures, tutorials, enquiry and problem-based learning. 
Requirements, Exclusions and Recommendations
Learning Requirements:

It is necessary for the student to have taken MATH40430 and ACM30080 (or equivalent) in order to take this module. It is also necessary for the student to have taken MATH40690.


Module Requisites and Incompatibles
Incompatibles:
MATH40770 - Adv Financial Models (online)


 
Assessment Strategy  
Description Timing Open Book Exam Component Scale Must Pass Component % of Final Grade
Continuous Assessment: Continuous assessment:
-Homework 1 (10%)
-Homework 2 (10%)
-Mid term exam (10%)		 Throughout the Trimester n/a Standard conversion grade scale 40% No

30
Examination: Written examination. 2 hour End of Trimester Exam No Standard conversion grade scale 40% No

70

Carry forward of passed components
No
 
Resit In Terminal Exam
Summer Yes - 2 Hour
Please see Student Jargon Buster for more information about remediation types and timing. 
Feedback Strategy/Strategies

• Group/class feedback, post-assessment

How will my Feedback be Delivered?

Not yet recorded.

T. Björk, Arbitrage Theory in Continuous Time, Oxford University Press 2005.
D. Brigo, F. Mercurio, Interest Rate Models - Theory and Practice (Second Ed.), Springer Verlag 2006.
Timetabling information is displayed only for guidance purposes, relates to the current Academic Year only and is subject to change.
 
Spring
      
Lecture Offering 1 Week(s) - 20, 21, 22, 23, 24, 25, 26, 29, 30, 31, 32, 33 Mon 10:00 - 11:50
Lecture Offering 1 Week(s) - 20, 21, 22, 23, 24, 25, 26, 29, 30, 31, 32, 33 Thurs 10:00 - 10:50
Lecture Offering 1 Week(s) - 20, 21, 22, 23, 24, 25, 26, 29, 30, 31, 32, 33 Tues 12:00 - 13:50
Spring