AFC4240

Mathematical finance

(BUS)

Associate Professor Roger Gay

7 points + Two 1.5 hour classes per week + First semester + Clayton + Prerequisites: ETC3460 or any one-year undergraduate calculus course together with any one-year statistics course or their equivalent

Synopsis: Topics covered will be selected from: Markowitz portfolio theory, CAPM, asset pricing methodologies, accumulation under stochastic rates of interest, hedging in interest rate and share markets, risk-neutral valuation, binomial option pricing model, Black-Scholes option price, equivalent martingale measures, stochastic integration and the interpretation of a stochastic integral, need for Ito's integral in option pricing, stochastic exponential models of the share price, consequences for portfolio theory and the CAPM, the inter-temporal CAPM, Ito's formula, Ito processes, Ito calculus, integration by parts and applications to financial modelling.

Assessment: Examination: 50% + Assignment: 50%