SF2975 Financial Derivatives 7.5 credits
The overall purpose of the course is that the student should be well acquainted with basic arbitrage theory and the concepts of arbitrage and completeness. The student should be able to critically analyse financial models, for example stock market models and interest rate models.
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Application
For course offering
Autumn 2024 Start 26 Aug 2024 programme students
Application code
51988
Content and learning outcomes
Course contents
Mathematical finance and pricing of financial derivatives using martingale theory with particular focus on models in continuous time. The main focus of the course lies on the following topics:
- Martingale measures and their usage for pricing of financial derivatives including the underlying theory.
- Financial Derivatives such as Options, Forwards, and Futures; study of their properties and pricing of them.
- Black Scholes model and its extensions.
- Analysis of various interest rate models (such as forward rate, swap rate, and LIBOR models) and application of them for pricing.
- Change of numeraires and the application of it as a method for derivatives pricing.
Intended learning outcomes
After completion of the course the student shall be able to:
- formulate and motivate central concepts and results within mathematical finance and describe and argue for relations between them.
- apply central concepts, methods and results within mathematical finance to model and analyse financial market models and to price financial derivatives.
- analyse financial markets from different stability perspectives.
Literature and preparations
Specific prerequisites
- English B / English 6
- Completed advanced course in Probability theory(SF2940 or equivalent)
Recommended prerequisites
- Completed basic course in Financial Mathematics (SF2701 or similar)
- Completed advanced course in Martingales and Stochastic Integrals (SF2971 or equivalent).
Equipment
Literature
Examination and completion
If the course is discontinued, students may request to be examined during the following two academic years.
Grading scale
Examination
- OVN1 - Assignments, 3.0 credits, grading scale: P, F
- TEN1 - Examination, 4.5 credits, grading scale: A, B, C, D, E, FX, F
Based on recommendation from KTH’s coordinator for disabilities, the examiner will decide how to adapt an examination for students with documented disability.
The examiner may apply another examination format when re-examining individual students.
Opportunity to complete the requirements via supplementary examination
Opportunity to raise an approved grade via renewed examination
Examiner
Ethical approach
- All members of a group are responsible for the group's work.
- In any assessment, every student shall honestly disclose any help received and sources used.
- In an oral assessment, every student shall be able to present and answer questions about the entire assignment and solution.