Print Course syllabus
Course syllabus - Analytical Finance II
Scope
7.5 credits
Course code
MMA708
Valid from
Autumn semester 2013
Education level
Second cycle
Progressive Specialisation
A1F (Second cycle, has second-cycle course/s as entry requirements).
Main area(s)
Mathematics/Applied Mathematics
School
School of Education, Culture and Communication
Ratified
2013-02-01
Literature lists
Course literature is preliminary up to 8 weeks before course start. Course literature can be valid over several semesters.
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Books
Analytical Finance: Volume II : The Mathematics of Interest Rate Derivatives, Markets, Risk and Valuation
Cham : Springer International Publishing, 2017 - XXXI, 728 p. 141 illus.
ISBN: 9783319525846 LIBRIS-ID: 22250725
Compendiums
Analytical Finance 1 & 2
Problems and solutions to Analytical Finance
Reference Literature
Options, futures, and other derivatives
8. ed., Global ed. : Boston : Pearson, cop. 2012 (dvs. 2011) - xxi, 847 s.
ISBN: 978-0-273-75907-2 (pbk) LIBRIS-ID: 12308484
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Books
Analytical Finance: Volume II. The Mathematics of Interest Rate Derivatives, Markets and Valuation
Compendiums
Analytical Finance 1& 2
Akademin för utbildning, kultur och kommunikation,
Problems and solutions to Analytical Finance
Reference Literature
Options, futures, and other derivatives
8. ed., Global ed. : Boston : Pearson, cop. 2012 (dvs. 2011) - xxi, 847 s.
ISBN: 978-0-273-75907-2 (pbk) LIBRIS-ID: 12308484
-
Books
Compendiums
Analytical Finance 1& 2
Akademin för utbildning, kultur och kommunikation,
Reference Literature
Options, futures, and other derivatives
8. ed., Global ed. : Boston : Pearson, cop. 2012 (dvs. 2011) - xxi, 847 s.
ISBN: 978-0-273-75907-2 (pbk) LIBRIS-ID: 12308484
Objectives
In Analytical Finance II the students will broaden their knowledge of models and methods used in the financial industry. The major part of the course will focus on mathematical and numerical methods for fixed income instruments such as bills, notes and bonds, caps, floors and swaps and many others. By the end of this course the students should have broad knowledge in solving financial problems.
Learning outcomes
At the end of the course the student is expected to be able to
- transform between different interest rates (simple, discounting, continuous, spot, forward etc.).
- explain the concepts of day count conventions, quote types, future and present values, accrued interest rate and hazard rates.
- explain different kinds of fix-income instruments and calculate different kinds of risk measures.
- use bootstrapping on bonds and swaps to calculate yield curves using linear methods, Nelson-Siegel and Cox-Ingersoll-Ross and calculate Zero-Coupon bond prices with different short rate models.
- derive and solve the term-structure partial differential equation for the short rate models above and derive and use the Heath-Jarrow-Morton framework.
- use the Girsanov theorem, Radon-Nikodym derivative and martingale representation theorems to calculate values of financial contracts by changing probability measures.
- use the Black-Derman-Toy Model to calculate interest rate derivatives and calibrate the tree to market interest rate and volatility.
- manage an advanced project where the above mentioned abilities are used and make a well written report on the project.
Course content
Bonds and interest rates: yield, YTM, bootstrapping, discounting, present and future value, spot rates, and forward rates. Par rates, par yield, and repo rates. Inter bank rates (LIBOR, STIBOR, etc). Macaulay's, Fisher-Weil and modified duration and convexity. Risk measures in fixed-income. The cash flow of bonds and accrued interest rates. Interest rate derivatives. Numerical methods in finance: Binomial trees for interest rates. Bonds with embedded options: Callable and putable bonds and Option Adjusted Spread. Interest rate models: Hull-White, Ho-Lee and Heath-Jarrow-Morton. Portfolio Immunization and hedging with duration and convexity. Market price of interest rate risk. Forward measures. Convexity Adjustments. Convertible Bonds. The Libor Market Model.
Tuition
Lectures and a seminar project where the students will implement and model financial contracts using numerical methods.
Specific requirements
At least 120 credits totally from these areas: technical, natural sciences, business administration or economics where Analytical Finance I 7,5 credits or equivalent is included. In addition Swedish course B/Swedish course 3 and English course A/English course 6 are required. For courses given entirely in English exemption is made from the requirement in Swedish course B/Swedish course 3.
Examination
Seminar (SEM1), 1.5 credits, marks Pass (G) or Pass with distinction (VG)
Written examination (TEN1), 6 credits, marks Pass (G) or Pass with distinction (VG)
A student who has a certificate from MDU regarding a disability has the opportunity to submit a request for supportive measures during written examinations or other forms of examination, in accordance with the Rules and Regulations for Examinations at First-cycle and Second-cycle Level at Mälardalen University (2020/1655). It is the examiner who takes decisions on any supportive measures, based on what kind of certificate is issued, and in that case which measures are to be applied.
Suspicions of attempting to deceive in examinations (cheating) are reported to the Vice-Chancellor, in accordance with the Higher Education Ordinance, and are examined by the University’s Disciplinary Board. If the Disciplinary Board considers the student to be guilty of a disciplinary offence, the Board will take a decision on disciplinary action, which will be a warning or suspension.
Grade
Pass with distinction, Pass, Fail