Mathematics of Finance III

Subject ACTL90003 (2011)

Note: This is an archived Handbook entry from 2011.

Credit Points: 12.50
Level: 9 (Graduate/Postgraduate)
Dates & Locations:

This subject is not offered in 2011.
Time Commitment: Contact Hours: A 2 hour seminar and a 1 hour workshop per week
Total Time Commitment: Estimated total time commitment of 120 hours per semester
Prerequisites:

ACTL90001 Mathematics of Finance I

Subject
Study Period Commencement:
Credit Points:
Corequisites: None
Recommended Background Knowledge: Students should be competent in the use of Excel.
Non Allowed Subjects:

ACTL40004 Advanced Financial Mathematics I

Subject
Core Participation Requirements:

For the purposes of considering requests for Reasonable Adjustments under the Disability Standards for Education (Cwth 2005), and Students Experiencing Academic Disadvantage Policy, academic requirements for this subject are articulated in the Subject Description, Subject Objectives, Generic Skills and Assessment Requirements for this entry.

The University is dedicated to provide support to those with special requirements. Further details on the disability support scheme can be found at the Disability Liaison Unit website: http://www.services.unimelb.edu.au/disability/

Contact

Graduate School of Business and Economics
Level 4, 198 Berkeley Street
Telephone: +61 3 8344 1670
Online Enquiries
Web: www.gsbe.unimelb.edu.au

Subject Overview: The binomial model; risk-neutral pricing of derivative securities; introduction to Ito's formula and SDEs; stochastic asset models; Black-Scholes model; arbitrage and hedging; interest-rate models; actuarial applications.
Objectives:

On successful completion of this subject a student should be able to:

  • Demonstrate a knowledge of the properties of option prices, valuation methods and hedging techniques, and be able to apply these;
  • Show how to use binomial trees and lattices in valuing options;
  • Apply the Ito calculus;
  • Derive option prices under the Black-Scholes model;
  • Describe and apply in simple models, including the binomial model and the Black-Scholes model, the approach to pricing using deflators and demonstrate its equivalence to the risk-neutral pricing approach;
  • Demonstrate a knowledge of models of the term structure of interest rates;
  • Describe, as a computational tool, the risk-neutral approach to the pricing of zero coupon bonds and interest-rate derivatives for a general one-factor diffusion model for the risk-free rate of interest;
  • Demonstrate a knowledge of simple models for credit risk.
Assessment:
  • An assignment of up to 1,000 words (10%)
  • One hour mid-semester test (20%)
  • Two hour end of semester exam (70%)
Prescribed Texts: You will be advised of prescribed texts by your lecturer.
Breadth Options:

This subject is not available as a breadth subject.
Fees Information: Subject EFTSL, Level, Discipline & Census Date
Generic Skills:

High level of development:

  • Written communication;
  • Problem solving;
  • Statistical reasoning;
  • Application of theory to practice;
  • Interpretation and analysis.
Related Course(s): Master of Actuarial Science
Postgraduate Diploma in Actuarial Science

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