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.
- Second semester 2019 (On-campus)
or or equivalent
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.
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.
On completion of this unit students will be able to:
- Develop specialised mathematical knowledge and skills within the field of stochastic calculus.
- Understand the complex connections between financial and probabilistic concepts.
- Apply sophisticated stochastic modelling skills within the context of interest rate modelling.
- Apply critical thinking to problems in interest rate modelling.
- Formulate expert solutions to practical financial problems using specialised cognitive and technical skills within the field of stochastic calculus.
- Communicate complex information in an accessible format to a non-mathematical audience.
NOTE: From 1 July 2019, the duration of all exams is changing to combine reading and writing time. The new exam duration for this unit is 3 hours and 10 minutes.
Examination (3 hours): 60% (Hurdle)
Continuous assessment: 40%
Hurdle requirement: To pass this unit a student must achieve at least 50% overall and at least 40% for the end-of-semester exam.
Two 2-hour lectures per week
See also Unit timetable information