Dr David Itkin

This course is compulsory on the BSc in Financial Mathematics and Statistics. This course is available as an outside option to students on other programmes where regulations permit. This course is available with permission to General Course students.

MA203 Real Analysis. Must be taken with ST202 Probability, Distribution Theory and Inference.

This course introduces the concepts of valuation, hedging and portfolio selection in a discrete-time environment. Towards the end, it introduces continuous-time markets in a heuristic fashion. It covers the following topics:

• The binomial model; pricing and replication.

• Trinomial model and incompleteness, arbitrage-free price intervals.

• General discrete-time models and the fundamental theorems.

• Portfolio optimization and hedging.

• Multi-period models and backwards induction methods.

• Passage to continuous time Black & Scholes model.

This course will be delivered through a combination of classes, lectures and Q&A sessions totalling a minimum of 30 hours across Winter Term. This course includes a reading week in Week 6 of Winter Term.

Students will be expected to produce 9 problem sets in the WT.

Certain problem sets will be returned with feedback.

Lecture notes will be provided.

Exam (80%, duration: 2 hours, reading time: 15 minutes) in the spring exam period.
Coursework (20%).