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ETC4351 - Modelling in finance and insurance

6 points, SCA Band 0 (NATIONAL PRIORITY), 0.125 EFTSL

Undergraduate, Postgraduate Faculty of Business and Economics

Leader(s): Professor Fima Klebaner and Professor Don Poskitt


Clayton First semester 2009 (Day)


Mathematical definition of options and other financial derivatives; probability models; mathematical models of random processes; applications; numerical methods; Monte Carlo methods.


The learning goals associated with this unit are to:

  • develop an understanding of the modern approach to evaluation of uncertain future payoffs
  • develop an understanding of the concepts of arbitrage and fair games and their relevance to finance and insurance
  • develop an understanding of concept of conditional expectation and martingales and their relation to pricing of financial derivatives
  • develop an understanding of the random processes such as Random Walk, Brownian Motion and Diffusions and be able to apply them for modelling real life processes and risk models
  • obtain skills to use Ito's formula
  • develop the skills to price options by using the Binomial and Black-Scholes models
  • ability to simulate the price process and obtain prices by simulation
  • ability to formulate discrete time Risk Model in Insurance and use it for control of probabilities of ruin.


Within semester assessment: 40%
Examination: 60%

Contact hours

Three 1-hour lectures and one 1-hour tutorial/practice class per week.


Students must have passed ETC1010 and one of the following before undertaking this unit. ECC2410, ETC2400, ETC2410, ETC2430, ETC2480 or ETC3440


ETC3510, ETC3514, MTH3251

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