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Mathematical Finance in Discrete Time - MAT00096M

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  • Department: Mathematics
  • Module co-ordinator: Dr. Alex Daletskii
  • Credit value: 20 credits
  • Credit level: M
  • Academic year of delivery: 2024-25
    • See module specification for other years: 2023-24

Module summary

In this module you will learn the basic mathematics that is applied in the area of finance. In particular, you will learn how to build a theory of portfolio selection, apply no-arbitrage principle for the valuation of derivative securities and use different compounding methods to compute streams of payments. All models will be in discrete time.

Professional requirements

Counts towards IFoA exemption.

Related modules

Pre-requisite modules

Co-requisite modules

  • None

Prohibited combinations


Additional information

Post requisite module: Mathematical Finance in Continuous Time

Module will run

Occurrence Teaching period
A Semester 1 2024-25

Module aims

In this module you will learn the basic mathematics that is applied in the area of finance. In particular, you will learn how to build a theory of portfolio selection and, consequently, asset prices in both complete and incomplete markets. This theory will then be applied to the valuation of financial and real assets. All models will be in discrete time.

Module learning outcomes

By the end of the module, students will be able to:

  1. Describe, analyse, and apply the Markowitz portfolio theory

  2. Describe, analyse, and apply the Capital Asset Pricing Model

  3. Describe, analyse and apply basic compounding methods

  4. Describe, analyse, and apply the theory of arbitrage pricing in complete markets in discrete time

  5. (M-level only) Describe and analyse incomplete markets on example of the trinomial model.

Module content

In this module you will learn the basic mathematics that is applied in the area of finance. In particular, you will learn how to build a theory of portfolio selection, apply no-arbitrage principle for the valuation of derivative securities and use different compounding methods to compute streams of payments. All models will be in discrete time.

Assessment

Task Length % of module mark
Closed/in-person Exam (Centrally scheduled)
Closed exam : Mathematical Finance in Discrete Time		 3 hours 80
Essay/coursework
Excel-based assignment		 N/A 20

Special assessment rules

None

Additional assessment information

If a student has a failing module mark, only failed components need be reassessed.

Reassessment

Task Length % of module mark
Closed/in-person Exam (Centrally scheduled)
Closed exam : Mathematical Finance in Discrete Time		 3 hours 80
Essay/coursework
Excel-based assignment		 N/A 20

Module feedback

Current Department policy on feedback is available in the student handbook. Coursework and examinations will be marked and returned in accordance with this policy.

Indicative reading

Capinski, M. and T. Zastawniak (2003), Mathematics for Finance, Springer Verlag.

Evstigneev, I., T. Hens, and K. Schenk-Hoppé (2015), Mathematical Financial Economics, Springer Verlag.

Magill, M. and M. Quinzii (1996), Theory of Incomplete Markets, MIT Press.

Shreve, S. (2004), Stochastic Calculus for Finance I: The binomial asset pricing model, Springer.


The information on this page is indicative of the module that is currently on offer. The University is constantly exploring ways to enhance and improve its degree programmes and therefore reserves the right to make variations to the content and method of delivery of modules, and to discontinue modules, if such action is reasonably considered to be necessary by the University. Where appropriate, the University will notify and consult with affected students in advance about any changes that are required in line with the University's policy on the Approval of Modifications to Existing Taught Programmes of Study.