Department of Computing

Teaching Database Course Curr

Tutoring: Staff GTA/UTAs Helpers: Staff GTA/UTAs

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Teaching: Staff GTA/UTAs

ValidFrom Title Code

01 Oct 2011

ValidTo

28 Sep 2012

Id

8020214

Computational Finance 422 Term LabHours 2 0 LectureHours 18 WeeklyHours 3 PopLastYear 99

TutorialHours 9 PopEstimate Classes Syllabus 99 a5, c4, i4, j4, o4, r5, s5, v5, x4

PopRegistered 8 HelpersTotal 4

This course introduces the theory and application of modern quantitative finance from an engineering perspective.

Aims: After this course, the students will: - understand the basic concepts of quantitative finance and financial engineering; - be aware of the major decision, hedging, and pricing problems in finance, know how to formulate these problems as mathematical models, and understand the computational techniques to solve the arising models.

Learning Outcomes: This course will enable the students to: - compare and appraise the basic theories that underlie current thinking in finance and investment; - describe how these theories are applied in practical situations; - describe the properties of the principle asset classes and securities; - apply the basic analytical methods and computational tools used in finance; - solve portfolio selection problems with off-the-shelf optimization software; - solve option pricing problems based on binomial lattices;

- be able to read the technical literature in computational finance and undertake independent self-study (or research) in the future.

Course Outline: 1. Introduction to Computational Finance 1.1 Course Organization 1.2 Cash Flow Streams 1.3 Investments and the Market 1.4 Toy Example for Financial Option Pricing 2. Mathematical Preliminaries 2.1 Functions 2.2 Differential Calculus 2.3 Optimization 2.4 Probability Theory 3. The Basic Theory of Interest 3.1 The Time Value of Money 3.2 Net Present Value 3.3 The Term Structure of Interest Rates 4. Fixed-Income Securities 4.1 Terminology and Examples 4.2 Pricing of Fixed-Income Securities 4.3 Risk-Management of Fixed-Income Securities 5. Mean-Variance Portfolio Theory 5.1 Asset Returns 5.2 Variance as a Risk Measure 5.3 Markowitz Problem 5.4 Parameter Estimation 6. The Capital Asset Pricing Model (CAPM) 6.1 The One- and Two-Fund Theorems 6.2 The Capital Market Line 6.3 Systematic and Unsystematic Risk 6.4 CAPM as a Pricing Formula 7. General Principles 7.1 Utility Theory and Risk Aversion 7.2 Portfolio Choice and Linear Pricing 7.3 Risk-Neutral Pricing 8. Asset Price Dynamics 8.1 Binomial Lattices 8.2 Ito Processes 9. Basic Options Theory 9.1 Definitions, Terminology, and Payoff Diagrams 9.2 Single-Period Binomial Options Theory 9.3 Multi-Period Binomial Options Theory

9.4 Real Options URL Notes Lecture Notes: http://www.doc.ic.ac.uk/~dkuhn/Teaching.html Pre-Requisites: Required: C233 - Computational Techniques (for computing students). All students are assumed to be familiar with basic analysis and linear algebra. The lecture notes for C233 are available from http://www.doc.ic.ac.uk/%7Eim/LectureNotes/comtec17e.pdf. Recommended: C343 - Operations Research. Students who have not taken this course are assumed to be familiar with linear programming duality. The lecture notes for C343 are available from http://www.doc.ic.ac.uk/~dkuhn/Teaching.html.

Teaching Staff
Photo Login 1 dkuhn Title Firstname Dr Daniel Lastname Kuhn Role Lecturer Hrs 18 Term 2

Options
Class 1 2 3 4 5 6 7 8 9 mc4 mcai4 mcbm4 mcgvi4 mcip4 mcse4 mise4 mjmc4 mocc4 Title M.Eng Computing M.Eng Computing (Artifical Intelligence) MEng Computing (Computation in Biology and Medicine) MEng Computing (Games, Vision and Interaction) MEng Computing (International Programme) M.Eng Computing (Software Engineering) M.Eng Information Systems Engineering M.Sci Mathematics and Computer Science MEng Exchange Students MEng External Departments M.Sc Advanced Computing M.Sc Computing Science M.Sc in Computing (Architecture) M.Sc in Computing (Artificial Intelligence) Exam Code C422 C422 C422 C422 C422 C422 C422 C422 C422 C422 C422 C422 C422 C422 PopReg Pop LastYr 0 0 0 0 0 0 0 0 None None 0 0 0 0 0 21 0 0 0 0 1 2 3 None None 21 13 0 2 0 Required Selective Selective2 Selective Selective Selective Selective Optional Selective Optional Optional Selective2 Selective Optional Optional Optional

10 mxx4 11 pac5 12 pcs5 13 pcsa5 14 pcsai5 15 pcsba5

M.Sc in Computing (Biomedical Applications) C422

16 pcsci5 17 pcscm5 18 pcsds5 20 pcsse5 21 pcsth5 22 pcsvip5 23 pres5

M.Sc in Computing (Computational M.Sc in Computing (Creative Industries) Management Science) M.Sc in Computing (Distributed Systems) M.Sc in Computing (Software Engineering) M.Sc in Computing (Theory) M.Sc in Computing (Visual Information Processing) M.Res in Advanced Computing

C422 C422 C422 C422 C422 C422 C422 C422

0 8 0 0 0 0 0 0

0 6 2 1 10 0 0 0

Optional Required Optional Optional Optional Optional Optional Selective

19 pcspm5 MSc in Computing (Performance Modelling)

Reading List (Library)

Code 1 IS Category Title A Investment Science Authors Luenberger, D.G. Publisher/Pub Date Oxford University Press, 1998 Cambridge University Press, 2007 Cambridge University Press, 2004 Upper Saddle River, NJ : Prentice Hall, c2008 Prentice Hall, 2000

OMF

Cornuejols, G. and Optimization Methods in Finance Tutuncu, R. An introduction to financial option valuation : mathematics, Higham, D.J. stochastics, and c ... Options, futures and other Hull, John derivatives / John C. Hull. 7th ed. Dynamic asset pricing theory Duffie, D.

AIFOV B

4 5

OFD DAPT

B B

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