Aims and Fit of Module

Aims and Fit of Module
This module aims to provide a solid foundation in the theories of probability measures and risk-neutral asset evaluation, both of which constitute an essential part of modern mathematical finance. It establishes a comprehensive and theoretical framework to integrate probability measures and asset pricing in the context of risk-neutral pricing of derivative securities. The analytical skills are further developed/implemented, associated with financial applications.

Learning outcomes

Learning Outcomes
A Demonstrate and explain basic concepts/theories of probability measures.
B Apply theories of risk-neutral asset pricing in discrete/continuous time.
C Conduct quantitative analysis on risk-neutral pricing of options in binomial model.
D Apply theories of numéraire under specific risk-neutral measures.
E Conduct theoretical analysis on option valuation in Black-Scholes-Merton model.

Method of teaching and learning

Method of Teaching and Learning
This module is organised as a combination of formal lectures and tutorial classes. Students are also expected to devote sufficient unsupervised time to study.