Course description
The focus of the course is on mathematical theory and modelling. The course draws from the disciplines of probability theory, scientific computing and partial differential equations to derive relations between fundamental variables such as asset pricing, market movements and interest rates, that can be used to develop models for pricing, risk management and product development.
Students on this course will acquire an in-depth knowledge and understanding of financial mathematics and the ability to analyse new problems mathematically. Students should choose this degree if they are interested in specialising in mathematical theory and modelling. The course is mainly intended to provide the tools required to undertake high quality research in both financial and academic institutions.
Graduates from this MSc will be suited for jobs in investment houses involved in derivatives valuation and portfolio management, research departments within banks, and consultancy firms. Students graduating from the course should be equipped for careers involving the development of pricing and risk management models and their testing, or as risk analysts or quantitative analysts. The course also offers advanced topics, which can lead to academic research in the field of financial mathematics.
The MSc in Financial Mathematics is also suitable for actuaries interested in the investment and technical areas of finance, as it offers the opportunity for exemptions from subject ST6 of the Institute and Faculty of Actuaries.
Course Content - Ahead of the game
We review all our courses regularly to keep them up-to-date on issues of both theory and practice. Therefore, there may be some change to the detailed content of the modules and occasionally to module titles.
To satisfy the requirements of the degree programme students must complete:
* nine core courses
and
* five electives
or
* two electives and a Business Research Project
Two Induction Weeks The Financial Mathematics course starts with two compulsory induction weeks, focused on:
* an introduction to careers in finance and the opportunity to speak to representatives from over 75 companies during a number of different industry specific fairs.
* a refresher course of advanced financial mathematics, statistics, computing and electronic databases.
Term 1
Four core modules (30 hours each)
Asset Pricing
This course introduces students to the basic concepts used for pricing and analysing financial securities, focusing on spot markets. The efficiency of financial markets is discussed together with the question of whether stock prices are predictable. The importance of the risk and its trade off with return will be analysed in depth. The course is academically rigorous in outlining theoretical models but also focuses on the practical applications and empirical finding.
Numerical Methods 1: Foundations
This module introduces basic concepts used in numerical methods and integrates them with a programming language. This module is lab based and will cover Root finding and non-linear sets of equations; Solution of linear systems; Interpolation and extrapolation; Integration of functions; Partial differential equation; Generation of random number
Mathematical Models for Financial Derivatives
The course will develop an in depth understanding of the theoretical framework for the valuation and hedging of derivatives contracts. In particular, the module covers the application of the no-arbitrage principle for the pricing of forward, futures and options. Emphasis will be given to the risk neutral valuation principle, and the Black-Scholes-Merton option-pricing model. The module also offers an introduction to the theory of the term structure of interest rates. The course combines mathematical rigour and practical applications, and it relies on the fundamental concepts of stochastic calculus developed in the corresponding module.
Stochastic Calculus
The course aims at providing students with the tools required for a rigorous understanding of financial modelling and pricing techniques, and therefore provides the mathematical grounding for the course in Mathematical Models for Financial Derivatives. The module covers probability theory, Brownian motion and Itô calculus, the Girsanov theorem and its applications to the pricing of financial securities.
* Term 2
Four core modules (30 hours each)
Fixed Income Securities
This module will acquaint students with the main modelling streams used in fixed income securities. It will also enable students to use models in this area of practical applications and equip students with the fundamental modelling techniques underpinning the subject.
Numerical Methods 2: Applications in Finance
This module builds on Numerical Methods 1 and focuses on applications to finance. Students will learn how to generate stochastic processes; Monte Carlo Simulations; Trees; Pricing American options; Applications in risk management. This module again integrates a programming language and is lab based.
Risk Analysis
The aim of this module is to develop a solid background for evaluating, managing and researching financial risk. To this end students will learn to analyse and quantify risk according to current best practice in the markets, as implemented in the RiskMetrics and CreditMetrics methodologies. The module also looks briefly at operational risk.
Advanced Stochastic Modelling Methods in Finance
This module will cover recent advances in mathematical finance and financial engineering which go beyond the standard Black-Scholes framework, like the applications of Lévy processes and optimal control in finance. The course is the continuation of the term 1 modules Mathematical Models for Financial Derivatives and Stochastic Calculus, and provides students with a thorough understanding of the pricing and hedging of financial securities in incomplete markets.
* Term 3
Five electives from the list below (18 hours each)
OR
Two electives and a Business Research Project
Electives
You may choose from a wide variety of electives. For example:
* Hedge Funds
* Exotic Options
* Equity Investment
* Technical Analysis and Trading Options
* Advanced Financial Engineering and Credit
* Fixed Income Arbitrage and Trading
* Behavioural Finance
* MATLAB
* Visual Basic
Research Methods module
This compulsory module trains students to undertake independent research either in the context of a single organisation or by using third-party sources. It provides the necessary tools and skills to initiate, research and write up a business project and includes training in research methodology, availability of data sources, project writing, time-management and presentation skills. These skills will be invaluable to students in their future career whether or not they choose to complete a project.
