General Information
Course Code | X_400076 |
---|---|
Credits | 6 EC |
Period | P4+5 |
Course Level | 400 |
Language of Tuition | English |
Faculty | Faculty of Science |
Course Coordinator | prof. dr. G.J.B. van den Berg |
Examiner | prof. dr. G.J.B. van den Berg |
Teaching Staff |
prof. dr. G.J.B. van den Berg |
Practical Information
You need to register for this course yourself
Last-minute registration is available for this course.
Teaching Methods | Lecture |
---|
Target audiences
This course is also available as:
Course Objective
After completion of the course, the student can:1. explain the payoff function of several options and use a no-arbitrage
argument to explain relations between several standard options,
2. use the binomial model for option pricing, including replicating
portfolio's,
3. understand the stochastic model for the share process and how that
leads to the Black-Scholes equation,
4. describe solutions of some partial differential equations, in
particular linear parabolic pde's, depending on boundary and initial
conditions,
5. discuss American options and the relation to free boundary problems,
6. apply finite difference methods for the solution of the heat equation
and associated stability issues.
Course Content
This course gives an introduction to financial mathematics.The following subjects will be treated:
- introduction in the theory of options;
- the binomial method;
- introduction to partial differential equations;
- the heat equation;
- the Black-Scholes formula and applications;
- introduction to numerical methods, approximating the price of an
(American) option.
Teaching Methods
Lectures, exercises, discussion of exercises.Method of Assessment
There will be sets of homework (at least 4) which will count for 40percent of the total grade, and a final written exam which will count
for 60 percent. There is a resit for the final exam. A grade of 5.0 for
the final exam is required to pass the course. The homework still counts
for the resit exam.
Literature
The Mathematics of Financial Derivatives, A Student Introduction, byPaul Wilmott, Sam Howison, Jeff Dewynne. Cambridge University Press.
In addition, lecture notes will be made available.
Target Audience
3W, mMath, mBA, 3EctRecommended background knowledge
Single Variable and Multivariable Calculus, Linear Algebra andProbability Theory as in the VU courses on these subjects