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Description
This module aims to explore advanced topics in finance via mathematical and statistical methods in order to gain a better understanding of optimal decision making, risk management and derivative pricing techniques. It is primarily intended for third and fourth year undergraduates and taught postgraduates registered on the degree programmes offered by the Department of Statistical Science (including the CSML and MASS programmes). The academic prerequisite for these students听(in addition to their compulsory modules) is STAT0013.
Intended Learning Outcomes
- be able to听define the concepts of risk aversion and stochastic dominance, and apply them to manage risk in, and rank capital projects;
- be able to understand how dynamic programming can be used to make optimal decisions under uncertainty;
- be able to understand how to apply mathematical and statistical modelling techniques to credit risk modelling, value-at-risk measurements and capital adequacy assessments;
- be able to understand a range of modelling techniques used in derivative pricing, and the concepts and assumptions that underpin them;
- be able to criticise and understand the limitations of these techniques as they are used in the modern finance industry.
Applications - The techniques taught in this module are widely used throughout the modern finance industry, including the areas of: business investments decisions (for example in the energy sector where decisions on whether or not to invest in and build new power plants are subject to uncertainty regarding future energy demand and prices); in corporate finance; in trading activities in the financial markets; in financial and other forms of risk management; in valuing and accounting for assets; and in the prudential regulation of the banking industry.
Indicative Content - Utility theory; Real options, including dynamic programming, optimal investment rules, and managerial flexibility; Risk management, including value-at-risk, expected shortfall, and credit risk modelling; More advanced techniques in derivative pricing.
Key Texts - Available from .
Module deliveries for 2024/25 academic year
Last updated
This module description was last updated on 8th April 2024.
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