Students
STAT890 – Stochastic Finance
2016 – 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
Monday 10am - 12 pm
Lecturer
Nino Kordzakhia
Contact via 02 9850 8549
Level 2, The Australian Hearing Hub
Tuesday 12 - 1 pm & 2 - 3 pm
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|---|---|
| Credit points |
Credit points
4
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| Prerequisites |
Prerequisites
Admission to MAppStat or PGDipAppStat or PGCertAppStat or GradDipAppStat
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| Corequisites |
Corequisites
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| Co-badged status |
Co-badged status
STAT790
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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 a useful edge to those competing for jobs 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:
- Demonstrate and apply the Markowitz portfolio optimisation theory and Capital Asset Pricing Model;
- Utilise no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- Demonstrate and apply the Black-Scholes-Merton model for pricing financial derivatives;
- Recognise the assumptions and limitations of the statistical models deployed in market and credit risk management.
Assessment Tasks
| Name | Weighting | Due |
|---|---|---|
| Online Quiz 1 | 10% | Week 3 |
| 1 Individual Assignment | 10% | Week 7 |
| Online Quiz 2 | 10% | Week 10 |
| Class test | 10% | Week 12 |
| Final Examination | 60% | TBA |
Online Quiz 1
Due: Week 3
Weighting: 10%
1 short (open book) online quiz will be made available on iLearn one week prior to the due dates.
Students will have 1 hour to complete the quiz and submit the solution in a document (word document, pdf, scanned hand-written solution etc) using the iLearn's online submission system. Students are allowed one attempt at the quiz.
No extensions will be granted. Students who have not submitted the task prior to the deadline will be awarded a mark of 0 for the task, except for cases in which an application for disruption of studies is made and approved.
On successful completion you will be able to:
- Utilise no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- Recognise the assumptions and limitations of the statistical models deployed in market and credit risk management.
1 Individual Assignment
Due: Week 7
Weighting: 10%
One assignment (made available through iLearn) to be completed individually and submitted via iLearn.
No extensions will be granted. Students who have not submitted the task prior to the deadline will be awarded a mark of 0 for the task, except for cases in which an application for disruption of studies is made and approved.
On successful completion you will be able to:
- Demonstrate and apply the Markowitz portfolio optimisation theory and Capital Asset Pricing Model;
- Utilise no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- Recognise the assumptions and limitations of the statistical models deployed in market and credit risk management.
Online Quiz 2
Due: Week 10
Weighting: 10%
Details on this online quiz will be made available via iLearn at a later date.
No extensions will be granted. Students who have not submitted the task prior to the deadline will be awarded a mark of 0 for the task, except for cases in which an application for disruption of studies is made and approved.
On successful completion you will be able to:
- Utilise no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- Demonstrate and apply the Black-Scholes-Merton model for pricing financial derivatives;
- Recognise the assumptions and limitations of the statistical models deployed in market and credit risk management.
Class test
Due: Week 12
Weighting: 10%
There will be one open book class test. Students will take this test in class and the test will last for 50 minutes.
Students who have not completed the test will be awarded a mark of 0 for the test, except for cases in which an application for disruption of studies is made and approved.
On successful completion you will be able to:
- Utilise no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- Demonstrate and apply the Black-Scholes-Merton model for pricing financial derivatives;
- Recognise the assumptions and limitations of the statistical models deployed in market and credit risk management.
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.
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.
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:
- Demonstrate and apply the Markowitz portfolio optimisation theory and Capital Asset Pricing Model;
- Utilise no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- Demonstrate and apply the Black-Scholes-Merton model for pricing financial derivatives;
- Recognise the assumptions and limitations of the statistical models deployed in market and credit risk management.
Delivery and Resources
Textbook
There is no 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.
Assessment
Your final mark (see Grading, below) for STAT890 will be a weighted average of marks on your work during the semester and in the final examination.
Grading
Your final grade in STAT890 will be based on your work during semester and in the final examination as specified in the Assessment section above. The grades allocated (HD, D, Cr, et cetera) are as set out in the Grading Policy (see the Policies and Procedures page).
Unit Website
Enrolment in STAT890 should automatically make the STAT890 iLearn site available to you from the start of semester. To access it, log in at https://ilearn.mq.edu.au/login/MQ/ and select STAT890 from your list of iLearn units. If STAT890 doesn’t appear, though, and you enrolled in the unit more than 24 hours ago, please contact the Unit Convenor immediately.
The iLearn site is an important part of this unit, giving you access to the online discussion facility, lecture notes, assignments, tutorial exercises and solutions. Unit information appears there too, including this unit outline. During the semester, you should visit the iLearn site at least twice per week.
Software/ Technologies Used
Matlab and R are the recommended software in this unit.
Students will need to use a calculator for the final examination and some of the other assessments.
Unit Schedule
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Date |
Week |
Topic |
Assessment |
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1 August |
1 |
Introduction: Simple Market Model |
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8 August |
2 |
Interest rate modelling |
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15 August |
3 |
Interest rate modelling (cont.); Introduction to Portfolio Theory |
Online Quiz 1 |
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22 August |
4 |
Portfolio optimisation theory |
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29 August |
5 |
Portfolio optimisation theory (cont.); Capital asset pricing model |
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5 September |
6 |
Capital asset pricing model (cont.) |
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12 September |
7 |
Introduction to continuous-time market models |
Assignment 1 |
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19 - 30 September |
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Mid-session break |
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3 October |
8 |
Labour Day (No Lecture) |
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10 October |
9 |
Continuous-time models |
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17 October |
10 |
Black-Scholes-Merton (BSM) model: No-arbitrage and risk-neutral pricing |
Online Quiz 2 |
| 24 October | 11 | BSM model: Option pricing | |
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31 October |
12 |
BSM model: Option pricing (cont.) |
Class Test |
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7 November |
13 |
Financial engineering; Credit risk modelling; 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
New Assessment Policy in effect from Session 2 2016 http://mq.edu.au/policy/docs/assessment/policy_2016.html. For more information visit http://students.mq.edu.au/events/2016/07/19/new_assessment_policy_in_place_from_session_2/
Assessment Policy prior to Session 2 2016 http://mq.edu.au/policy/docs/assessment/policy.html
Grading Policy prior to Session 2 2016 http://mq.edu.au/policy/docs/grading/policy.html
Grade Appeal Policy http://mq.edu.au/policy/docs/gradeappeal/policy.html
Complaint Management Procedure for Students and Members of the Public http://www.mq.edu.au/policy/docs/complaint_management/procedure.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://www.mq.edu.au/about_us/offices_and_units/information_technology/help/.
When using the University's IT, you must adhere to the Acceptable Use of IT Resources Policy. The policy applies to all who connect to the MQ network including students.
Graduate Capabilities
PG - Discipline Knowledge and Skills
Our postgraduates will be able to demonstrate a significantly enhanced depth and breadth of knowledge, scholarly understanding, and specific subject content knowledge in their chosen fields.
This graduate capability is supported by:
Learning outcomes
- Demonstrate and apply the Markowitz portfolio optimisation theory and Capital Asset Pricing Model;
- Utilise no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- Demonstrate and apply the Black-Scholes-Merton model for pricing financial derivatives;
- Recognise the assumptions and limitations of the statistical models deployed in market and credit risk management.
Assessment tasks
- Online Quiz 1
- 1 Individual Assignment
- Online Quiz 2
- Class test
- Final Examination
PG - Critical, Analytical and Integrative Thinking
Our postgraduates will be capable of utilising and reflecting on prior knowledge and experience, of applying higher level critical thinking skills, and of integrating and synthesising learning and knowledge from a range of sources and environments. A characteristic of this form of thinking is the generation of new, professionally oriented knowledge through personal or group-based critique of practice and theory.
This graduate capability is supported by:
Learning outcomes
- Demonstrate and apply the Markowitz portfolio optimisation theory and Capital Asset Pricing Model;
- Utilise no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- Demonstrate and apply the Black-Scholes-Merton model for pricing financial derivatives;
- Recognise the assumptions and limitations of the statistical models deployed in market and credit risk management.
Assessment tasks
- Online Quiz 1
- 1 Individual Assignment
- Online Quiz 2
- Class test
- Final Examination
PG - Research and Problem Solving Capability
Our postgraduates will be capable of systematic enquiry; able to use research skills to create new knowledge that can be applied to real world issues, or contribute to a field of study or practice to enhance society. They will be capable of creative questioning, problem finding and problem solving.
This graduate capability is supported by:
Learning outcomes
- Demonstrate and apply the Markowitz portfolio optimisation theory and Capital Asset Pricing Model;
- Utilise no arbitrage asset pricing principles in discrete- and continuous-time statistical models;
- Demonstrate and apply the Black-Scholes-Merton model for pricing financial derivatives;
- Recognise the assumptions and limitations of the statistical models deployed in market and credit risk management.
Assessment tasks
- Online Quiz 1
- 1 Individual Assignment
- Online Quiz 2
- Class test
- Final Examination
Changes from Previous Offering
A different set of assessment tasks will be used and none of the assessment task will be a hurdle assessment in this offering.