Text

Course syllabus - Introduction to Financial Mathematics

Scope

7.5 credits

Course code

MAA303

Valid from

Autumn semester 2019

Education level

First cycle

Progressive Specialisation

G1F (First cycle, has less than 60 credits in first-cycle course/s as entry requirements).

Main area(s)

Mathematics/Applied Mathematics, Economics

School

School of Education, Culture and Communication

Ratified

2013-02-01

Revised

2018-12-07

Literature lists

Course literature is preliminary up to 8 weeks before course start. Course literature can be valid over several semesters.

    • Ratified date: 2020-11-13
    • Latest update: 2020-11-18

    Books

    Hull, John

    Options, futures, and other derivatives

    Ninth edition, Global edition. : Boston : Pearson Education Limited, [2018] - 1 online resource (891 pages )

    ISBN: 9781292212920 LIBRIS-ID: 22129439

    ISBN-10: 1-292-21289-6; ISBN-13:978-1-292-21289-0

    Reference Literature

    Ross, Sheldon M.

    An Elementary Introduction to Mathematical Finance, Cambridge University Press, latest edition.

    Other Materials

    Additional lecture notes will be used in the course.

    • Ratified date: 2019-03-05
    • Latest update: 2019-03-05

    Books

    Hull, John

    Options, futures, and other derivatives

    8. ed., Global ed. : Boston : Pearson, cop. 2012 (dvs. 2011) - xxi, 847 s.

    ISBN: 978-0-273-75907-2 (pbk) LIBRIS-ID: 12308484

    9 ed or 7 ed are ok as well.

    Reference Literature

    Ross, Sheldon M.; Ross, Sheldon M.

    An elementary introduction to mathematical finance : options and other topics

    2. ed. : Cambridge : Cambridge Univ. Press, 2003 - xv, 253 s.

    ISBN: 0-521-81429-4 (inb.) LIBRIS-ID: 8679325

    URL: Link

    Other Materials

    Additional lecture notes will be used in the course.

    Akademin för utbildning, kultur och kommunikation,

Objectives

The aim of this course is to provide an understanding of financial instruments with a focus on financial derivatives and give knowledge in evaluating and pricing of the most common financial derivatives like forwards, futures and options.

Learning outcomes

At the end of the course the student is expected to be able to
- describe the notions of forward contracts, futures contracts, options, interest rates, bonds and explain the arbitrage relations.
- evaluate forwards and futures and calculate bounds on options using simple arbitrage relations.
- build the Binomial model for asset prices and apply this model for European and American option pricing.
- perform arbitrage-pricing and perform risk-neutral valuation for options.
- explain the basic idea of the Black-Scholes model and use Black-Scholes formula to price.

Course content

Introduction to derivative securities. Interest rates and bonds. Present value and future value. European and American options. Simple arbitrage relations for forwards, futures and options. Elementary discrete probability theory. Asset price dynamics. Multi-period Binomial pricing model. Pricing contracts via no-arbitrage principle. Risk-neutral valuation. Normal distribution. Geometrical Brownian motion and modeling asset price processes. Black-Scholes model and Black-Scholes option pricing formula.

Tuition

Lectures, problem solving classes and seminars.

Specific requirements

Single Variable calculus 7.5hp and either Financial Accounting 7,5hp or 7,5hp in economics or corresponding.

Examination

Continuous examination and quizzes (PRO1), 3 credits, marks Pass (G)
Seminars (SEM1), 1.5 credits, marks Pass (G)
Written examination (TEN1), 3 credits, marks Pass (G) or Pass with distinction (VG)

A student who has a certificate from MDU regarding a disability has the opportunity to submit a request for supportive measures during written examinations or other forms of examination, in accordance with the Rules and Regulations for Examinations at First-cycle and Second-cycle Level at Mälardalen University (2020/1655). It is the examiner who takes decisions on any supportive measures, based on what kind of certificate is issued, and in that case which measures are to be applied.

Suspicions of attempting to deceive in examinations (cheating) are reported to the Vice-Chancellor, in accordance with the Higher Education Ordinance, and are examined by the University’s Disciplinary Board. If the Disciplinary Board considers the student to be guilty of a disciplinary offence, the Board will take a decision on disciplinary action, which will be a warning or suspension.

Study guide

Grade

Three-grade scale