Description
The course introduces the notion of No-Arbitrage Pricing and stochastic calculus necessary for modern Financial Mathematics. Derivation of the Back-Scholes partial differential equation, which is solved using classical techniques (heat equation), are shown. Financial applications are emphasized and shortcomings of the Black-Scholes framework are examined in great detail. Extensions, including stochastic volatility models, are presented. The Feynman-Kac connection between diffusions and PDEs is emphasized.
The aims of this course are to:
1. Introduce concepts of stochastic calculus in finance
2. Pricing and hedging of derivative instruments
3. Shortcomings (and proposed solutions) of the Black-Scholes model
4. Gain a solid understanding of key financial concepts from both a mathematical and financial viewpoint
Module deliveries for 2024/25 academic year
Last updated
This module description was last updated on 19th August 2024.
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