Module Information
Module Identifier
MA37810
Module Title
STOCHASTIC MODELS IN FINANCE
Academic Year
2011/2012
Co-ordinator
Semester
Semester 2
Pre-Requisite
Course Delivery
| Delivery Type | Delivery length / details |
|---|---|
| Lecture | 18 x 1 hour |
| Seminars / Tutorials | 4 x 1 hour |
| Other | Worksheets 4 x 5 hours |
| Other | Private Study 56 hours |
Assessment
| Assessment Type | Assessment length / details | Proportion |
|---|---|---|
| Semester Exam | 2 Hours TWO HOUR EXAMINATION CONVENTIONAL 2 HOUR EXAMINATION | 100% |
| Supplementary Exam | 2 Hours TWO HOUR EXAMINATION CONVENTIONAL 2 HOUR EXAMINATION | 100% |
Learning Outcomes
On successful completion of this module students should be able to:
Set up mathematical models for modeling random systems over time (stochastic process modeling).
Use the formalism of Ito's stochastic calculus to manipulate and solve stochastic differential equations.
Apply probability and stochastic process theory to model financial models
Analyse and synthesise mathematical models of financial marks.
Aims
The module builds on probability and stochastic processes to introduce continuous time stochastic processes aimed at modelling the stock exchange. We aim to derive the Black-Scholes model of arbitrage option pricing.
Content
Introduction
Stock/Bonds
Arbitrage Pricing
Cox-Ross-Rubenstein Model
Binomial branch/tree models
Binomial Representation theorem
Continuous Processes
The Wiener Process
Ito calculus
Girsanov's theorem
Black-Scholes Model
Portfolios/Strategies
The Black-Scholes model
Further Topics
Poisson Processes
Stock/Bonds
Arbitrage Pricing
Cox-Ross-Rubenstein Model
Binomial branch/tree models
Binomial Representation theorem
Continuous Processes
The Wiener Process
Ito calculus
Girsanov's theorem
Black-Scholes Model
Portfolios/Strategies
The Black-Scholes model
Further Topics
Poisson Processes
Module Skills
| Skills Type | Skills details |
|---|---|
| Application of Number | throughout the module. |
| Communication | Students will be expected to submit written worksheet solutions. |
| Improving own Learning and Performance | Feedback via tutorials |
| Information Technology | Indicative use of computational modeling stochastic processes. |
| Personal Development and Career planning | Students will be exposed to an area of application that they have not previously encountered. |
| Problem solving | All situations considered are problem-based to a greater or lesser degree. |
| Research skills | Students will be encouraged to consult various books and journals for examples of application. |
| Subject Specific Skills | using probabilistic and stochastic techniques in financial modeling. |
| Team work | N/A |
Notes
This module is at CQFW Level 6