MATHS 4112 - Financial Modelling: Tools & Techniques - Honours

North Terrace Campus - Semester 2 - 2022

The growth of the range of financial products that are traded on financial markets or are available at other financial institutions, is a notable feature of the finance industry. A major factor contributing to this growth has been the development of sophisticated methods to price these products. The significance to the finance industry of developing a method for pricing options (financial derivatives) was recognized by the awarding of the Nobel Prize in Economics to Myron Scholes and Robert Merton in 1997. The mathematics upon which their method is built is stochastic calculus in continuous time. Binomial lattice type models provide another approach for pricing options. These models are formulated in discrete time and the examination of their structure and application in various financial settings takes place in a mathematical context that is less technically demanding than when time is continuous. This course discusses the binomial framework, shows how discrete-time models currently used in the financial industry are formulated within this framework and uses the models to compute prices and construct hedges to manage financial risk. Spreadsheets are used to facilitate computations where appropriate. Topics covered are: The no-arbitrage assumption for financial markets; no-arbitrage inequalities; formulation of the one-step binomial model; basic pricing formula; the Cox-Ross-Rubinstein (CRR) model; application to European style options, exchange rates and interest rates; formulation of the n-step binomial model; backward induction formula; forward induction formula; n-step CRR model; relationship to Black-Scholes; forward and future contracts; exotic options; path dependent options; implied volatility trees; implied binomial trees; interest rate models; hedging; real options; implementing the models using EXCEL spreadsheets.

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Course Details

Course Code	MATHS 4112
Course	Financial Modelling: Tools & Techniques - Honours
Coordinating Unit	Mathematical Sciences
Term	Semester 2
Level	Undergraduate
Location/s	North Terrace Campus
Units	3
Contact	Up to 3 hours per week
Available for Study Abroad and Exchange	Y
Prerequisites	MATHS 1010 or MATHS 1011 or ECON 1010
Assumed Knowledge	Familiarity with Excel spreadsheets
Restrictions	Honours students only
Assessment	Ongoing Assessment, Exam

Course Staff

Course Coordinator: Dr Judith Bunder

Course Timetable

The full timetable of all activities for this course can be accessed from .

Course Learning Outcomes

On successful completion of this course students will be able to:
1. demonstrate an understanding of basic financial market concepts
2. construct binomial tree models
3. price a wide variety of contingent claims using principles of non-arbitrageXX

最新糖心Vlog Graduate Attribute	Course Learning Outcome(s)
Attribute 1: Deep discipline knowledge and intellectual breadth Graduates have comprehensive knowledge and understanding of their subject area, the ability to engage with different traditions of thought, and the ability to apply their knowledge in practice including in multi-disciplinary or multi-professional contexts.	1,2,3
Attribute 2: Creative and critical thinking, and problem solving Graduates are effective problems-solvers, able to apply critical, creative and evidence-based thinking to conceive innovative responses to future challenges.	1,2,3
Attribute 3: Teamwork and communication skills Graduates convey ideas and information effectively to a range of audiences for a variety of purposes and contribute in a positive and collaborative manner to achieving common goals.	2,3
Attribute 4: Professionalism and leadership readiness Graduates engage in professional behaviour and have the potential to be entrepreneurial and take leadership roles in their chosen occupations or careers and communities.	1,2,3

Learning & Teaching Modes

Comprehensive course notes are provided. Each week, videos will be made available. Videos will consist of the lecturer explaining key material and examples from the lecture notes. Weekly face-to-face lectures and tutorials supplement this, providing exercises to enhance learning and confirm understanding including interaction with the lecturer and/or tutor. Three written assignments, three online tests and weekly quizzes provide the assessment opportunities for students to gauge and demonstrate their progress and understanding. Regular consulting sessions can be used to interact with the lecturer and/or tutor.

Workload

The information below is provided as a guide to assist students in engaging appropriately with the course requirements.

Activity	Quantity	Workload Hours
Lecture material Tutorials Tests Online quizzes Assignments	12 weeks 12 tutorials 3 tests 12 quizzes 3 assignments	90 hours 24 hours 3 hours 3 hours 30 hours
Total		150 hours

Learning Activities Summary

Topics

1. Call options - European and American
2. Trading options
3. Put options
4. Arbitrage
5. Binomial assett pricing model
6. Price derivatives using risk neutral probabilities
7. Cox-Ross-Rubinstein (CRR) model
8 Arrow-Debreu securities and state prices
9. Black Scholes model
10. Volatility
11. Variable interest rates
12. Valuing American options
13. Barrier options
14. Forward contracts
15. Interest rate derivatives
16. Bonds
17. Ho-Lee model
18. Futures markets
19. Managing risk
20. Hedging
21. Sensitivity of options

The 最新糖心Vlog's policy on Assessment for Coursework Programs is based on the following four principles:

Assessment must encourage and reinforce learning.
Assessment must enable robust and fair judgements about student performance.
Assessment practices must be fair and equitable to students and give them the opportunity to demonstrate what they have learned.
Assessment must maintain academic standards.

Assessment Summary

Component	Weighting	Objective Assessed
Assignments	15%	all
Online quizzes	10%	all
Online tests	15%	all
Exam	60%	all

Assessment Related Requirements

An aggregate score of at least 50% is required to pass the course.

Assessment Detail

Assessment Item	Distributed	Due Date	Weighting
Assignment 1 Assignment 2 Assignment 3 Online test 1 Online test 2 Online test 3 Quizzes Exam	Week 4 Week 6 Week 8 Week 4 Week 6 Week 8 Weekly Exam period	Week 6 Week 8 Week 10 Week 4 Week 6 Week 8 Week 11 Week 12	5% 5% 5% 5% 5% 5% 10% in total 60%

Submission

Assignments are to be submitted online via MyUni. Late assignments will not be accepted.

Course Grading

Grades for your performance in this course will be awarded in accordance with the following scheme:

M11 (Honours Mark Scheme)
Grade	Grade reflects following criteria for allocation of grade	Reported on Official Transcript
Fail	A mark between 1-49	F
Third Class	A mark between 50-59	3
Second Class Div B	A mark between 60-69	2B
Second Class Div A	A mark between 70-79	2A
First Class	A mark between 80-100	1
Result Pending	An interim result	RP
Continuing	Continuing	CN

Further details of the grades/results can be obtained from Examinations.

Grade Descriptors are available which provide a general guide to the standard of work that is expected at each grade level. More information at Assessment for Coursework Programs.

Final results for this course will be made available through .

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