Course Code and Name: MATH4210 Financial Mathematics

Course Objectives:

 

Topics of the course will include: Basic option theory, forward and futures contracts, model of asset price, Ito's Lemma, asset price random walk, Black-Scholes model, free boundary problems of options, discrete random walk model, the binomial methods, Monte Carlo methods, and if time allows, finite difference method. This course is about the mathematics of option pricing. Students taking this course are expected to have good knowledge in probability theory and partial differential equations.

Course Outcomes:

 

In this course, the students are expected to learn

Ÿ European Options

Ÿ American Options

Ÿ Interest Rates

Ÿ Put-Call Parity

Ÿ Trading Strategies

Ÿ Geometric Brownian Motions

Ÿ Ito's Lemma

Ÿ Black-Scholes Equations

Ÿ Extension of Black-Scholes Model

Ÿ Binomial Method

Ÿ Monte Carlo Methods

Ÿ Finite Difference Methods

 

 

 

 

 

Programme Outcomes:

(P1)    The ability to apply knowledge of mathematics, science, and engineering appropriate to the degree discipline (K/S)

(P2)    The ability to design and conduct experiments, as well as to analyze and interpret data (K/S)

(P3)    The ability to design a system, component, or process to meet desired needs within realistic constraints, such as economic, environmental, social, political, ethical, health and safety, manufacturability and sustainability (K/S)

(P4)    The ability to function in multi-disciplinary teams (S/V)

(P5)    The ability to identify, formulate, and solve engineering problems (K/S)

(P6)    The understanding of professional and ethical responsibility (V)

(P7)    The ability to communicate effectively (S)

(P8)    The ability to understand the impact of engineering solutions in a global and societal context, especially the importance of health, safety and environmental considerations to both workers and the general public (V)

(P9)    The ability to recognize the need for, and to engage in life-long learning (V)

(P10) The ability to stay abreast of contemporary issues (S/V)

(P11) The ability to use the techniques, skills, and modern engineering tools necessary for engineering practice appropriate to the degree discipline (K/S)

(P12) The ability to use the computer/IT tools relevant to the discipline along with an understanding of their processes and limitations (K/S/V)

(P13) The ability to apply the skills relevant to the discipline of operations research and information technology and their applications in engineering and managerial decision making, especially in financial services, logistics and supply chain management, business information systems, and service engineering and management (K/S)

 

K = Knowledge outcomes

S = Skills outcomes

V = Values and attitude outcomes

Weights (in %):

P1

P2

P3

P4

P5

P6

P7

P8

P9

P10

P11

P12

P13

Other

Total

60%

10%

 

 

10%

 

 

 

 

 

10%

5%

5%

 

100%

Course Outcome(s) is/are measurable or not: Yes / Yes (Partial) / No (Please choose). If Yes, please suggest ways to measure:

 

P1, P5, P11 and P13: measurable by giving quizzes, tests, and exams

P2, P5, P12 and P13: measurable by programming assignments