MAS3904 : Stochastic Financial Modelling
- Offered for Year: 2019/20
- Module Leader(s): Dr Andrew Golightly
- Owning School: Mathematics, Statistics and Physics
- Teaching Location: Newcastle City Campus
Semester 1 Credit Value:
To develop a knowledge and understanding of some commonly used financial models in the analysis of financial data.
The demand for mathematical skills in financial institutions has increased considerably over the recent past. Financial analysts use sophisticated stochastic models to describe the unpredictable behaviour of markets, derive computable pricing methods and analyse financial data. The course deals with commonly used models for stock prices of risky assets and methods for pricing financial derivatives, such as options and contingent claims. The analysis of such models requires knowledge from probability, stochastic processes and statistics.
Outline Of Syllabus
Risk-free money market. Financial derivatives: call and put options of European type, contingent claims, other exotic options, arbitrage. Continuous-time models of stock price: Brownian/Geometric Brownian motion, Black-Scholes pricing. Volatility estimation using historic data, implied volatility. Monte Carlo pricing. Itô calculus: Itô integral and Itô formula. Models of interest rate as stochastic differential equations. Use of R for calculation and simulation.
|Guided Independent Study||Assessment preparation and completion||1||13:00||13:00||Revision for unseen exam|
|Guided Independent Study||Assessment preparation and completion||1||2:00||2:00||Unseen exam|
|Scheduled Learning And Teaching Activities||Lecture||3||1:00||3:00||Problem classes|
|Scheduled Learning And Teaching Activities||Lecture||2||1:00||2:00||Revision lectures|
|Scheduled Learning And Teaching Activities||Lecture||25||1:00||25:00||Formal lectures|
|Scheduled Learning And Teaching Activities||Lecture||1||1:00||1:00||Class test|
|Scheduled Learning And Teaching Activities||Drop-in/surgery||12||0:10||2:00||Office hours|
|Guided Independent Study||Independent study||1||19:00||19:00||Studying, practising and gaining understanding of course material|
|Guided Independent Study||Independent study||3||3:00||9:00||Review of written assignments and class test|
|Guided Independent Study||Independent study||1||12:00||12:00||Preparation for class test|
|Guided Independent Study||Independent study||2||6:00||12:00||Preparation for written assignments|
Jointly Taught With
|MAS8904||Stochastic Financial Modelling|
Teaching Rationale And Relationship
Lectures are used for the delivery of theory and explanation of methods, illustrated with examples, and for giving general feedback on marked work. Problem Classes are used to help develop the students’ abilities at applying the theory to solving problems. Tutorials are used to identify and resolve specific queries raised by students and to allow students to receive individual feedback on marked work. In addition, office hours (two per week) will provide an opportunity for more direct contact between individual students and the lecturer: a typical student might spend a total of one or two hours over the course of the module, either individually or as part of a group.
The format of resits will be determined by the Board of Examiners
|Written Examination||40||1||M||5||Class test|
|MAS8904||Stochastic Financial Modelling||1||N/A|
|Written exercise||1||M||5||Two written assignments|
Assessment Rationale And Relationship
A substantial formal unseen examination is appropriate for the assessment of the material in this module. The written exercises are expected to consist of two exercises of equal weight: the exact nature of assessment will be explained at the start of the module. The exercises and the in-course test allow the students to develop their problem solving techniques, to practise the methods learnt in the module, to assess their progress and to receive feedback; these assessments have a secondary formative purpose as well as their primary summative purpose.