Continuous Time Finance (FinKont)

Course content

 

  • Stochastic integrals and Ito formula
  • Stochastic differential equations
  • Arbitrage
  • Complet markets
  • Martingale methods in finalcial mathematics
Education

MSc Programme in Actuarial Mathematics
MSc Programme in Mathematics-Economics

Learning outcome

Knowledge:
Ito calculus, stochastic differential equation and methods applied in continuous time financial models.

Skills: 
At the end of the course, the students are expected to be able to

  • Apply theorems on stochastic integrals and stochastic differential equations, including theorems such as: Ito's formula, Feynman-Kac representations, martingale representations, Girsanov's theorem.
  • Determine arbitrage free prices of financial claims including determining partial differential equations for price functions.
  • Deduce if a diffusion model for the market is arbitrage free and if it is complete and to be familiar with the 1st and 2nd fundamental theorems of asset pricing including the determination of martingale measures.
  • Apply concepts for portfolios including self financing and replicating.
  • Apply the theory to determine the Black-Scholes price for a call option.

 

Competencies:
To provide operational qualifications and insight in modern financial methods.

4 hours of lectures and 3 hours of exercises per week for 7 weeks.

Example of course litterature:

Thomas bjork: "Arbitrage Theory in Continuous Time"

Sandsynlighedsteori (Sand) - alternatively Mål- og integralteori (MI) from previous years.
Either Stochastic Processes 2 or Advanced Probability Theory 1 (VidSand1).
Either Finansiering 1 (Fin1), Grundlæggende livsforsikringsmatematik 1 (Liv1), or similar.

Academic qualifications equivalent to a BSc degree is recommended.

Continuous feedback during the course of the semester

Upon active participation in  exercise classes, teaching assistant will provide feedback

ECTS
7,5 ECTS
Type of assessment
Written examination, 3 hours
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The course has been selected for ITX exam
Aid
All aids allowed

 

The University will make computers available to students taking on-site exams at ITX. Students are therefore not permitted to bring their own computers, tablets or mobile phones. If textbooks and/or notes are permitted, according to the course description, these must be in paper format or uploaded through Digital Exam.

Marking scale
7-point grading scale
Censorship form
No external censorship
One internal examiner.
Criteria for exam assessment

The student must in a satisfactory way demonstrate that he/she has mastered the learning outcome.

Single subject courses (day)

  • Category
  • Hours
  • Lectures
  • 28
  • Preparation
  • 154
  • Theory exercises
  • 21
  • Exam
  • 3
  • English
  • 206