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