units

MTH5520

Faculty of Science

print version

This unit entry is for students who completed this unit in 2016 only. For students planning to study the unit, please refer to the unit indexes in the the current edition of the Handbook. If you have any queries contact the managing faculty for your course or area of study.

6 points, SCA Band 2, 0.125 EFTSL

Postgraduate - Unit

Refer to the specific census and withdrawal dates for the semester(s) in which this unit is offered.

Faculty

Science

Organisational Unit

School of Mathematical Sciences

Coordinator(s)

Associate Professor Gregoire Loeper

Offered

Clayton

  • Second semester 2016 (Day)

Synopsis

Interest rate curves. Zero-coupon bonds, spot and forward interest rates. Interest rate derivatives. Stochastic differential equations. Change of measures. No arbitrage pricing and change of numeraire. One-factor short rate models, including Vasicek, Hull and White, CIR and affine models. Two-factor short rate models. The HJM framework and models for forward rates. LIBOR models. Pricing of interest rate derivatives: swaps, caps and swaptions.

Outcomes

On completion of this unit students will be able to:

  1. Develop specialised mathematical knowledge and skills within the field of stochastic calculus.
  2. Understand the complex connections between financial and probabilistic concepts.
  3. Apply sophisticated stochastic modelling skills within the context of interest rate modelling.
  4. Apply critical thinking to problems in interest rate modelling.
  5. Formulate expert solutions to practical financial problems using specialised cognitive and technical skills within the field of stochastic calculus.
  6. Communicate complex information in an accessible format to a non-mathematical audience.

Assessment

Weekly homework: 10%
Assignments: 10%
Minor project: 10%
Exam: 70%

Workload requirements

Two 2-hour lectures per week

See also Unit timetable information

Chief examiner(s)

Prerequisites

MTH5210 (or equivalent)

Co-requisites

Only students enrolled in the Master of Financial Mathematics can enrol in this unit. Exceptions can be made with permission from the unit co-ordinator.