UnitLevel 3Undergraduate

MTH3251 Financial mathematics

Faculty of Science

MTH3251 Financial mathematics is a level 3, 6-credit-point, undergraduate unit from the Faculty of Science, offered in 2020 in Semester 1 and Semester 2 at Clayton. It has no prerequisites and unlocks 3 units, leading on to 7 units in all.

Credit points
6
Offered in 2020
Semester 1, Semester 2
Clayton
Assessment
Exam 60%
and 1 other task

This is the 2020 handbook entry. See the 2027 entry.

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Requisites

Before MTH3251

No prerequisites or corequisites besides the enrolment rules below.

Enrolment rules

PROHIBITION: ETC3510, ETC5351

PREREQUISITE: You must have passed MTH2222 or ETC2520 or be enrolled in the  Master of Financial Mathematics.

Overview

Random variables, application to models of random payoffs. Conditional expectation. Normal distribution and multivariate normal distribution. Best predictors. Stochastic (random) processes. Random walk. Limit theorems. Brownian motion. Ito integral and Ito's formula. Black-Scholes, Ornstein-Uhlenbeck process and Vasicek's stochastic differential equations. Martingales. Gambler's ruin. Fundamental theorems of Mathematical Finance. Binomial and Black-Scholes models. Models for Interest Rates. Risk models in insurance. Ruin probability bound. Principles of simulation. Use of Excel package.

Offerings in 2020

Teaching periodCampusMode
First semesterClaytonOn campus
First semester (Fully flex)ClaytonFlexible
Second semesterClaytonOn campus

Assessment

  • In-semester assessmentThreshold hurdle
    40%
  • Examination (3 hours and 10 minutes)Threshold hurdle
    60%

Learning outcomes

When you finish this unit, you should be able to:

  1. 1

    Appreciate the modern approach to evaluation of uncertain future payoffs;

  2. 2

    Describe the concepts of arbitrage and fair games and their relevance to finance and insurance;

  3. 3

    Understand conditional expectation, martingales, and stopping times, as well as the Optional Stopping Theorem;

  4. 4

    Interpret models of random processes such as random walk, Brownian motion and diffusion, and stochastic differential equations;

  5. 5

    Use Ito's formula and basic stochastic calculus to solve some stochastic differential equations;

  6. 6

    Apply the Fundamental theorems of asset pricing to the Binomial and Black-Scholes models, as well as models for bonds and options on bonds;

  7. 7

    Formulate discrete time Risk Model in Insurance and use the Optional Stopping Theorem to control probabilities of ruin;

  8. 8

    Simulate stochastic processes and solutions of stochastic differential equations, and obtain prices by simulations.

Workload and teaching

  • Applied sessions24 hours
  • Lectures36 hours
  • Teaching approachActive learning

Three 1-hour lectures and one 2-hour applied class per week

Active learning will occur in lectures and applied classes.

Where it fits

MTH3251 is part of 7 areas of study in the 2020 handbook.

Contacts

Unit Coordinators
Dr Ivan Guo
Dr Fima Klebaner
Chief Examiners
Dr Fima Klebaner

Common questions

What are the prerequisites for MTH3251?

MTH3251 has no prerequisites, but enrolment rules apply.

What can I take after MTH3251?

MTH3251 is a prerequisite or corequisite for 3 units, including MTH5210, MTH5510 and MTH5520. Those lead on to 7 units in all.

When is MTH3251 offered?

In 2020, MTH3251 runs in Semester 1 and Semester 2 at Clayton.

Does MTH3251 have an exam?

Yes. The exam is worth 60% of the final mark, alongside 1 other task.

Which majors and minors include MTH3251?

MTH3251 is part of Applied mathematics; Financial and insurance mathematics; Mathematical statistics; Mathematics; and Pure mathematics.

More details

Credit points
6
Level
3
Study level
Undergraduate
Faculty
Faculty of Science
Organisational unit
School of Mathematics
Type
Coursework
EFTSL
0.125
Student contribution
SCA Band 2
Study abroad
Not available