Leader: Professor Fima Klebaner and Professor Don Poskitt
Offered
Clayton First semester 2008 (Day)
Synopsis
As for ETC4351.
Objectives
The learning goals associated with this unit are to:
- develop an understanding of the modern approach to evaluation of uncertain future payoffs
- develop an understanding of the concepts of arbitrage and fair games and their relevance to finance and insurance
- develop an understanding of concept of conditional expectation and martingales and their relation to pricing of financial derivatives
- develop an understanding of the random processes such as Random Walk, Brownian Motion and Diffusions and be able to apply them for modelling real life processes and risk models
- obtain skills to use Ito's formula
- develop the skills to price options by using the Binomial and Black-Scholes models
- ability to simulate the price process and obtain prices by simulation
- ability to formulate discrete time Risk Model in Insurance and use it for control of probabilities of ruin.
Assessment
Within semester assessment: 40%
Examination: 60%
Contact hours
3 one-hour lectures and 1 one-hour tutorial/practice class per week
