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Module FINANCIAL MATHEMATICS

Module code: MT381
Credits: 5
Semester: 1
Department: MATHEMATICS AND STATISTICS
International: Yes
Overview Overview
 

Module Objective:
To introduce students to the mathematics underlying financial calculus.

Review of basic ideas from probability. Introduction to Brownian motion and geometric Brownian
motion. Stopping times and the reflection principle. Introduction to martingales.

Evaluation of risk: Expected Value Criterion; Mean Variance Criterion; Maxmin Criterion; Expected Utility Criterion. The asking price and the risk premium. Measurements of Risk Aversion. The Portfolio Selection Problem and Risk Aversion.
Binomial models of the stock market. The arbitrage theorem. Pricing options using the Black-Scholes formula.

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