Browse Hierarchy MTH6155P: Financial Mathematics II

This module covers advanced ideas in financial mathematics, building on the foundational material in FM1. We revisit the discrete-time binomial model, introducing some more formal concepts such as conditional expectations that allow us to express our earlier results in a more elegant form. Then we look at continuoustime models, and use the tools of stochastic calculus to derive the Black-Scholes equation which we then solve explicitly for the prices of European call and put options. We also consider some more advanced applications, such as models for stock prices involving jumps and stochastic volatility, as well as interest rate models and credit risk models.