300-204 An Introduction to Stochastic Techniques in Financial Mathematics

Coordinator:

Prerequisite/s:

Timetable:

Contact:

Objectives:

On completion of this subject, students should be able to:

• calculate the accumulation of a single investment and a series of investments using a reinvestment rate model;

• calculate the mean and standard deviation of the accumulation and present value of a series of level investments when annual rates of return form an i.i.d. sequence;

• apply simulation techniques to find the distribution of the accumulation or present value of a series of level investments under a stochastic interest rate model;

• construct and apply a binomial lattice model;

• apply Brownian Motion to simple financial problems;

• describe simple time series models and their properties

• describe the application of time series models to some actuarial problems

Content:

Reinvestment rates; distributions of accumulations and present values; stochastic simulation; binomial lattice models; Brownian motion; time series models.

Assessment:

Prescribed Texts:

• McCutcheon and Scott, An Introduction to the Mathematics of Finance
• Cryer, Times Series Analysis