|Short Description:||Math Model Financial Economics|
|Faculty or Section :||Faculty of Health, Engineering and Sciences|
|School or Department :||School of Sciences|
|Student contribution band :||Band 1|
|ASCED code :||010101 - Mathematics|
|Grading basis :||Graded|
|Version produced :||25 February 2021|
Pre-requisite: (STA2300 or STA1003 or equivalent) and (MAT2100 or MAT2500 or ENM2600)
This course begins by investigating models of economic activity and the financial and economic strategies which are used to stimulate economic activity. After this models of financial processes, such as equity prices, interest rates, bond yields, and so on are considered. Simulation models of such processes are developed and used in experiments using scripts written in R and scilab which are supplied on the course web page (students may choose whether to use R or scilab - it is not necessary to use both).
The theory of Stochastic differential equations is introduced and studied by simulation and in theory. Techniques for solving such equations by means of Ito's formula are explained and applied. This is applied to financial process problems and the Black-Scholes differential equation is formulated and solved. Binomial tree models are introduced and used to solve a variety of option pricing models. In the last part of the course the method for solving option pricing problems based on the equivalent martingale measure. The oncampus offering of this course is normally available only in odd numbered years. The external offering of this course is available yearly.