ST5218: Advanced Statistical Methods in Finance

Spring, 2015
Instructor: Dr. Fang Xiao
Email: stafx@nus.edu.sg
Phone: 65168949
Office: Room S16 06-115
Lecture Hours: Friday 19:0022:00. Lecture Venue: LT20
Office Hour: Friday, 13:00-14:00.
Prerequisite: Basic knowledge in Probability and Statistics: Random variables; distribution function; expectation and variance; conditional distribution/expectation; central
limit theorem; stochastic processes; estimation; confidence intervals; hypothesis testing;
etc. No previous knowledge in Finance is required.
Aims and objectives: The objectives are three: (1) to introduce students to the basic
concepts and models in Finance; (2) to equip students with various statistical tools to
solve problems in Finance; and (3) use of statistical software R.
Text:
Statistics and Data Analysis for Financial Engineering David Ruppert (Springer).
References:
Analysis of Financial Time Series 3rd Edition, Ruey S. Tsay (Wiley).
Options, Futures, and Other Derivatives 8th Edition, John C. Hull (Pearson).
Tentative syllabus:
Topics in Finance: returns; portfolio theory; cointegration; capital asset pricing
model.
Topics in Statistics: exploratory data analysis; modeling univariate and multivariate
distributions; copulas; resampling; time series.
The following topics may also be discussed: principal component analysis; Markov
chain Monte Carlo simulation; risk management; nonparametric regression; BlackScholes formula.
Things I will NOT cover: regression; Bayesian statistics.

Assessment:
Project: 50%
34 students form a discussion group working on the same project.
Group members fixed in Week 3.
One-page project plan submitted the week after the mid-term reading week.
Each student writes a report (less than 5 pages) separately. The report is due in last
class.
One representative of each group present their result in last class for 15 minutes.
Final test: 50%. Time: 6 May 2015 (Wednesday), 5 pm Venue: TBA
Closed-book, two A4 sized help sheets (both sides) are allowed, only non-programmable
calculators are allowed.