Units

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Sample subject outline - Semester 2 2013

Note: Subject outlines often change before the semester begins. Below is a sample outline.

Rationale

Mathematical finance is a major area of application of mathematics. Its models and methods provide needed tools for quantitative modelling and financial analysis. In fact, its fundamental principles enhance a general education for life. This unit will equip you with essential skills for pursuing a career in business and finance.

Aims

This unit will present to you the essential elements of mathematical finance including the development of stochastic calculus which is essential for a quantitative treatment of mathematical finance. Computational approaches will be developed for simulating various financial instruments. In addition, the application of models and methods developed in some key problems of mathematical finance will be demonstrated to you.

Objectives

Upon successful completion of this unit you will have:

1. Acquired an advanced understanding of the methods of mathematical finance together with a broad understanding of the working financial markets.
2. Learned the application of models and methods developed through practical examples.
3. Learn to implement various numerical methods for solving financial problems in a software programming environment.
4. Developed and demonstrated generic capabilities including the use of appropriate techniques of written communication, engaging in analytical thinking skills and management of activities to achieve end results.

Content

The stock market; basic option theory.

Ito stochastic integrals and stochastic calculus.

The Black-Scholes market model and option valuation formula. Computational solution of the Black-Scholes model for European options using finite difference methods and binomial trees. Extension to American options. Also possible further content might include a selection from the following: simultation methods; exotic options such as path-dependent options and Asian Options; Real Options for valuation of assets; analysys of financial risk, such as VaR and alternatives; dynamic programming approaches.

It is expected that students will have some prior exposure to a modern computer programming language such as MATLAB, Visual Basic, R, Python, or similar which is needed to implement numerical methods in assessment tasks.

Approaches to Teaching and Learning

The materials are presented in one 2 hour discussion class per week. You will be also be expected to do some reading out of class to make up for less contact hours than other eqivalent mathematics units.

Your work will be context-based using a wide variety of examples from different areas of application. The emphasis will be on enabling your learning through experience, providing opportunities to enhance your written communication, and on honing skills and attitudes to promote your life-long learning.

A combination of lecture notes, discussions, working through small and larger real world problems, use of online materials, and derivation of solutions will promote creativity in problem-solving, critical assessment, and intellectual debate. You will be encouraged to engage in aspects of professionalism and ethics in the practice of mathematical finance.

Assessment

You will be expected to undertake a number of assessments related to the learning outcomes of this unit (see below).Feedback will be available through worked solutions to problems and comments on marked assignments.

Assessment name: Problem Solving Task
Description: This will consist of written solutions for exercises of the type given out during the semester together with a small programming exercise.
Relates to objectives: (1) and (2)
Weight: 20%
Internal or external: Internal
Group or individual: Individual
Due date: Mid semester

Assessment name: Quiz/Test
Description: A short quiz on basic techniques and derivations for the Black-Scholes equations, and numerical techniques for solving them, which covers learning objectives (1) and (2).
Relates to objectives: (1) and (3)
Weight: 30%
Internal or external: Internal
Group or individual: Individual
Due date: Mid semester

Assessment name: Report
Description: This will consist of a comprehensive written report into an investigation of a topic in financial mathematics not covered in lectures. A choice of topics with resources, such as book chapters or research papers will be provided for this assessment task.
Relates to objectives: (1) to (4)
Weight: 50%
Internal or external: Internal
Group or individual: Individual
Due date: End of semester

Academic Honesty

QUT is committed to maintaining high academic standards to protect the value of its qualifications. To assist you in assuring the academic integrity of your assessment you are encouraged to make use of the support materials and services available to help you consider and check your assessment items. Important information about the university's approach to academic integrity of assessment is on your unit Blackboard site.

A breach of academic integrity is regarded as Student Misconduct and can lead to the imposition of penalties.

Resource materials

Some resource material will be made available online.

References:
1. Wilmott P, The best of Wilmott. Available online from QUT Library
2. Wilmott P, Dewynne J & Howison S (1993) Option Pricing, Oxford Financial Press
3. Hull J (1997) Option, Futures and Other Derivatives, Prentice Hall

Risk assessment statement

There are no out of the ordinary risks associated with this unit. You should be conscious of workplace health and safety at all times. Fire exits in classrooms will be indicated in the first class (absentees should obtain advice when they next attend). In the event of a fire alarm sounding, or on a lecturer's instruction, you should leave the room and assemble in the designated area which will be indicated to you. You should not attempt to adjust or repair computer or other electrical equipment, and should report suspected faults to a Computer Systems Officer. Further information on health and safety at QUT can be found at http://hrd.qut.edu.au/healthsafety/healthsafe/index.jsp

Disclaimer - Offer of some units is subject to viability, and information in these Unit Outlines is subject to change prior to commencement of semester.

Last modified: 10-May-2012