| CODE | BFI3346 | ||||||||||||||||
| TITLE | Financial Mathematical Models | ||||||||||||||||
| UM LEVEL | 03 - Years 2, 3, 4 in Modular Undergraduate Course | ||||||||||||||||
| MQF LEVEL | 6 | ||||||||||||||||
| ECTS CREDITS | 4 | ||||||||||||||||
| DEPARTMENT | Banking, Finance and Investments | ||||||||||||||||
| DESCRIPTION | The study-unit aims to introduce students to the mathematics and to the modelling of financial problems, financial products, and/or general business decisions. The practical part of the unit starts by revisiting basic principles of statistics and sceptical empiricism in data-based inference, and then expands into generic modelling 'tricks' for forecasting and hypothesis testing, such as Monte Carlo, decision-trees, or stochastic control. The theoretical part of the unit covers topics like statistical significance, arbitrage pricing theory (in discrete models and in continuous time), standard portfolio theory, game theory, and the theory of cooperative decision-making. The study-unit concludes with some project-based work on non-standard portfolio construction, real-world examples of model risk, and how traders manage a financial book of business in practice. Study-Unit Aims: - Create an intuition in students to where models apply or do not apply; - Teach how to use (and not abuse) simple decision-tools, like statistical inference, game theory, and simple elements of stochastic control; - Teach science students the application of mathematics to the 'softer' sciences, where the questions even of how to set up a model isn't always precisely posed; - Teach banking and finance students that they don't have to 'understand' all the intricacies of a model in order to develop a useful intuition of where a model may work and where it may fail (i.e. take the fear out of using mathematical tools that one doesn't understand 100%); - As often in the real world, there is a difference between the people who create complex tools and machines, and the people who operate them. The aim is to teach students how the two can productively work together. Learning Outcomes: 1. Knowledge & Understanding: By the end of the study-unit the student will be able to: - analyze the limitations of models, and classify which models are useful in what situation; - assess the relative merits of simple approximations on the one hand, and more detailed models on the other. 2. Skills: By the end of the study-unit the student will be able to: - experiment with and evaluate various decision tools; - calculate quick, approximate and intuitive answers for some real-world modelling questions, even in the absence of a precise mathematical framework. Main Text/s and any supplementary readings: Main Texts: Lecture notes will be provided specific to the course. Supplementary Readings: - Axelrod, Robert: "The Evolution of Cooperation", Basic Books, 2006 (revised edited ed.). - Bodie, Zvi and Kane, Alex: "Investments and Portfolio Management", McGraw-Hill, (2011) (9th ed). - Gaarder Haug, Espen: "Dervivatives: Models on Models", John Wiley & Sons (2007). - Hull, John: "Options, Futures, and Other Derivatives", Pearson (2011) (8th ed). - Oakley, Barbara: "Mind for Numbers: How to Excel at Math and Science (Even if you Flunked Algebra", Tarcher (2014). - Poundstone, William: "Prisoner's Dilemma: John Von Neumann, Game Theory and the Puzzle of the Bomb", Anchor Books, 1993 (1st ed). - Silver, Nate: "The Signal and the Noise; The Art and Science of Prediction", Penguin (2013). - Taleb, Nassim: "The Black Swan: The Impact of the Highly Improbable", Penguin (2008) (re-issue ed). |
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| STUDY-UNIT TYPE | Lecture and Tutorial | ||||||||||||||||
| METHOD OF ASSESSMENT |
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| LECTURER/S | Karl Strobl |
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The University makes every effort to ensure that the published Courses Plans, Programmes of Study and Study-Unit information are complete and up-to-date at the time of publication. The University reserves the right to make changes in case errors are detected after publication.
The availability of optional units may be subject to timetabling constraints. Units not attracting a sufficient number of registrations may be withdrawn without notice. It should be noted that all the information in the description above applies to study-units available during the academic year 2024/5. It may be subject to change in subsequent years. |
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