Students
STAT402 – Topics in Stochastic Finance
2015 – S2 Evening
General Information
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| Unit convenor and teaching staff |
Unit convenor and teaching staff
Unit Convenor
Thomas Fung
Contact via 02 9850 4769
Level 2, The Australian Hearing Hub
Thursday 2 - 4 pm
Lecturer
Nino Kordzakhia
Contact via 02 9850
Level 2, The Australian Hearing Hub
Tuesday 12 - 2 pm
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| Credit points |
Credit points
3
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| Prerequisites |
Prerequisites
39cp including (STAT272(P) or STAT306(P) or STAT371(P))
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| Corequisites |
Corequisites
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| Co-badged status |
Co-badged status
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| Unit description |
Unit description
This unit serves as an introduction to the modern financial theory of security markets and, in particular, share prices and derivatives. It explains how the financial markets work using appropriate mathematical and statistical models and tools. The material provides essential skills to those conducting research in the finance and banking sectors.
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Important Academic Dates
Information about important academic dates including deadlines for withdrawing from units are available at https://www.mq.edu.au/study/calendar-of-dates
Learning Outcomes
On successful completion of this unit, you will be able to:
- Have a basic understanding of the Markowitz portfolio optimisation theory and Capital Asset Pricing Model;
- Understand no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- In Black-Scholes-Merton model use no arbitrage asset pricing principle for pricing of financial derivatives;
- Understand assumptions and limitations of the statistical models deployed in market and credit risk management.
Assessment Tasks
| Name | Weighting | Due |
|---|---|---|
| Online Test | 10% | Week 3 |
| 2 Individual Assignments | 30% | Weeks 6 & 12 |
| Final Examination | 60% | TBA |
Online Test
Due: Week 3
Weighting: 10%
The online test will be made available on iLearn one week prior to the due dates. Students are allowed two attempts at the tests until the deadline. A "pass" mark (approx. 80% of the total) will be indicated on the test. Inability to "pass" a test necessitates visiting one of the staff members' consultation hours. The highest score obtained will count towards the final grade. Students will get a different version of the test in their second attempt. The test is designed to give students an early opportunity to practice the theoretical and the mechanical aspects of the unit. Extensions will only be granted for cases in which an application for disruption to studies has been approved.
On successful completion you will be able to:
- Understand assumptions and limitations of the statistical models deployed in market and credit risk management.
2 Individual Assignments
Due: Weeks 6 & 12
Weighting: 30%
You will be issued two assignments (made available through iLearn) during the semester to be completed individually and submitted via iLearn.
Extensions will only be granted for cases in which an application for disruption to studies have been approved.
On successful completion you will be able to:
- Have a basic understanding of the Markowitz portfolio optimisation theory and Capital Asset Pricing Model;
- Understand no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- In Black-Scholes-Merton model use no arbitrage asset pricing principle for pricing of financial derivatives;
Final Examination
Due: TBA
Weighting: 60%
A three-hour final examination (plus ten minutes' reading time) for this unit will be held during the University Examination period.
You may take ONE A4 pages (written or typed on one or both sides) of summary notes into the exam.
Students MUST perform satisfactorily in the final examination in order to pass the unit regardless of their performance throughout the semester.
You are expected to present yourself for examination at the time and place designated in the University Examination Timetable. The timetable will be available in Draft form approximately eight weeks before the commencement of the examinations and in Final form approximately four weeks before the commencement of the examinations.
The only exception to not sitting an examination at the designated time is because of documented illness or unavoidable disruption. In these circumstances you may wish to consult Disruption to Studies Policy
http://mq.edu.au/policy/docs/disruption_studies/policy.html
A supplementary examination will only be granted if a student has satisfactory coursework (i. e. at least 50% of coursework).
The Macquarie university examination policy details, the principles and conduct of examinations at the University can be viewed at
On successful completion you will be able to:
- Have a basic understanding of the Markowitz portfolio optimisation theory and Capital Asset Pricing Model;
- Understand no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- In Black-Scholes-Merton model use no arbitrage asset pricing principle for pricing of financial derivatives;
- Understand assumptions and limitations of the statistical models deployed in market and credit risk management.
Delivery and Resources
TEXTBOOK
There is not textbook for this unit.
The list of recommended texts:
Capinski, M. and Zastawniak, T. (2003). Mathematics for Finance: An Introduction to Financial Engineering. Springer.
Lai, T. L. and Xing, H. (2008). Statistical models and methods for financial markets. Springer.
Luenberger, D.G. (1998). Investment Science, Oxford University Press.
Musiela, M. and Rutkowski, M. (1997). Martingale methods in financial modelling. Springer.
Pliska, S. R. (1997). Introduction to mathematical finance: discrete time models. Blackwell Publishing.
Ruppert, D. (2004). Statistics and Finance: An Introduction. Springer, 2004.
Shreve, S. (2004). Stochastic Calculus for Finance Vol II: Continuous-Time Models. Springer.
INTERNET RESOURCES / TECHNOLOGIES USED
Lecture notes will be available on the iLearn site prior to the lecture.
Consult the unit iLearn page regularly: https://ilearn.mq.edu.au/login/MQ/
Students will need to use a calculator for the final examination and some of the other assessments.
SOFTWARE
Matlab and R are the recommended software in this unit.
Unit Schedule
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Date |
Week |
Topic |
Assessment |
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28 July |
1 |
Introduction: Simple Market Model |
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4 August |
2 |
Interest rate modelling |
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11 August |
3 |
Interest rate modelling (cont.); Introduction to Portfolio Theory |
Online Test |
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18 August |
4 |
Portfolio optimisation theory |
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25 August |
5 |
Portfolio optimisation theory (cont.); Capital asset pricing model |
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1 September |
6 |
Capital asset pricing model (cont.) |
Assignment 1 |
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8 September |
7 |
Introduction to continuous-time market models |
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14 - 25 September |
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Mid-session break |
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29 September |
8 |
Continuous-time models |
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6 October |
9 |
Black-Scholes-Merton (BSM) model: No-arbitrage and risk-neutral pricing |
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13 October |
10 |
BSM model: Option pricing |
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| 20 October | 11 | BSM model: Option pricing (cont.) | |
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27 October |
12 |
Financial engineering; Credit risk modelling. |
Assignment 2 |
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3 November |
13 |
Revision |
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Policies and Procedures
Macquarie University policies and procedures are accessible from Policy Central. Students should be aware of the following policies in particular with regard to Learning and Teaching:
Academic Honesty Policy http://mq.edu.au/policy/docs/academic_honesty/policy.html
Assessment Policy http://mq.edu.au/policy/docs/assessment/policy.html
Grading Policy http://mq.edu.au/policy/docs/grading/policy.html
Grade Appeal Policy http://mq.edu.au/policy/docs/gradeappeal/policy.html
Grievance Management Policy http://mq.edu.au/policy/docs/grievance_management/policy.html
Disruption to Studies Policy http://www.mq.edu.au/policy/docs/disruption_studies/policy.html The Disruption to Studies Policy is effective from March 3 2014 and replaces the Special Consideration Policy.
In addition, a number of other policies can be found in the Learning and Teaching Category of Policy Central.
Student Code of Conduct
Macquarie University students have a responsibility to be familiar with the Student Code of Conduct: https://students.mq.edu.au/support/student_conduct/
Results
Results shown in iLearn, or released directly by your Unit Convenor, are not confirmed as they are subject to final approval by the University. Once approved, final results will be sent to your student email address and will be made available in eStudent. For more information visit ask.mq.edu.au.
Student Support
Macquarie University provides a range of support services for students. For details, visit http://students.mq.edu.au/support/
Learning Skills
Learning Skills (mq.edu.au/learningskills) provides academic writing resources and study strategies to improve your marks and take control of your study.
Student Services and Support
Students with a disability are encouraged to contact the Disability Service who can provide appropriate help with any issues that arise during their studies.
Student Enquiries
For all student enquiries, visit Student Connect at ask.mq.edu.au
IT Help
For help with University computer systems and technology, visit http://informatics.mq.edu.au/help/.
When using the University's IT, you must adhere to the Acceptable Use Policy. The policy applies to all who connect to the MQ network including students.
Graduate Capabilities
Creative and Innovative
Our graduates will also be capable of creative thinking and of creating knowledge. They will be imaginative and open to experience and capable of innovation at work and in the community. We want them to be engaged in applying their critical, creative thinking.
This graduate capability is supported by:
Learning outcomes
- Have a basic understanding of the Markowitz portfolio optimisation theory and Capital Asset Pricing Model;
- Understand no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- In Black-Scholes-Merton model use no arbitrage asset pricing principle for pricing of financial derivatives;
- Understand assumptions and limitations of the statistical models deployed in market and credit risk management.
Assessment tasks
- Online Test
- 2 Individual Assignments
- Final Examination
Discipline Specific Knowledge and Skills
Our graduates will take with them the intellectual development, depth and breadth of knowledge, scholarly understanding, and specific subject content in their chosen fields to make them competent and confident in their subject or profession. They will be able to demonstrate, where relevant, professional technical competence and meet professional standards. They will be able to articulate the structure of knowledge of their discipline, be able to adapt discipline-specific knowledge to novel situations, and be able to contribute from their discipline to inter-disciplinary solutions to problems.
This graduate capability is supported by:
Learning outcomes
- Have a basic understanding of the Markowitz portfolio optimisation theory and Capital Asset Pricing Model;
- Understand no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- In Black-Scholes-Merton model use no arbitrage asset pricing principle for pricing of financial derivatives;
- Understand assumptions and limitations of the statistical models deployed in market and credit risk management.
Assessment tasks
- Online Test
- 2 Individual Assignments
- Final Examination
Critical, Analytical and Integrative Thinking
We want our graduates to be capable of reasoning, questioning and analysing, and to integrate and synthesise learning and knowledge from a range of sources and environments; to be able to critique constraints, assumptions and limitations; to be able to think independently and systemically in relation to scholarly activity, in the workplace, and in the world. We want them to have a level of scientific and information technology literacy.
This graduate capability is supported by:
Learning outcomes
- Have a basic understanding of the Markowitz portfolio optimisation theory and Capital Asset Pricing Model;
- Understand no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- In Black-Scholes-Merton model use no arbitrage asset pricing principle for pricing of financial derivatives;
- Understand assumptions and limitations of the statistical models deployed in market and credit risk management.
Assessment tasks
- Online Test
- 2 Individual Assignments
- Final Examination
Problem Solving and Research Capability
Our graduates should be capable of researching; of analysing, and interpreting and assessing data and information in various forms; of drawing connections across fields of knowledge; and they should be able to relate their knowledge to complex situations at work or in the world, in order to diagnose and solve problems. We want them to have the confidence to take the initiative in doing so, within an awareness of their own limitations.
This graduate capability is supported by:
Learning outcomes
- Have a basic understanding of the Markowitz portfolio optimisation theory and Capital Asset Pricing Model;
- Understand no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- In Black-Scholes-Merton model use no arbitrage asset pricing principle for pricing of financial derivatives;
- Understand assumptions and limitations of the statistical models deployed in market and credit risk management.
Assessment tasks
- Online Test
- 2 Individual Assignments
- Final Examination
Changes from Previous Offering
This year a single online test (worth 10%) will replace two online quizzes offered previously.
Grading
The Macquarie University grading policy can be found at http://mq.edu.au/policy/docs/grading/policy.html
Note that, in order to be awarded a particular Standardised Numerical Grade (SNG) and Grade, a student must meet the performance standard outlined in the grading policy in both the coursework and the examination sections of the unit.
A Standardised Numerical Grade (SNG) gives you an indication of how you have performed within the band for your descriptive grade. The SNG is not a mark, and you may not be able to work it out based on your raw examination and other assessment marks. Nor are you able to determine you are “one mark away” from a different grade.