GradeBook

Assignment and class test mark are available on GradeBook. It is the responsibility of students to view their marks for each within session assessment on iLearn within 20 working days of posting. If there are any discrepancies, students must contact the unit convenor immediately. Failure to do so will mean that queries received after the release of final results regarding assessment marks (not including the final exam mark) will not be addressed."

Feedback Prior to the Census Date

Self-assessment exercise question(s) will be released in Week 3 for feedback prior to the census date.  Its answer will be also provided before the census date in Week 4.

Assessment criteria for all assessment tasks will be provided on the unit iLearn site.

Classes

This unit consist of 2 hours of lectures and 2 hours tutorial per week, Lectures are held at the following times: Monday 2:00-4:00pm E7B T2.

ACST817 Tutorials are held at the following times, commencing in Week 2:

Friday 12:00-2:00pm E8A 188 (Jiwook Jang)

You must attend the tutorial class. The tutorial is an opportunity for you to attempt the section exercises given at the end of each section of work, and to discuss problems with the tutor.

There is no tutorial held during Week 1.  Tutorial commences in Week 2.

Any alterations to the class times or locations will be advised in lectures and via the website - the link to the Timetables portal: http://timetables.mq.edu.au

Required and Recommended Texts and/or Materials Prescribed

Required texts

Lecture materials are available for downloading from ACST307/817 teaching website.

Recommended Textbooks

•Options, Futures and Other Derivatives (7th edition); John Hull

•An Introduction to the Mathematics of Financial Derivatives (2nd edition); Salih N. Neftci

•Interest Rate Models: An Introduction; Andrew J. G. Cairns

Each copy of these books is available in the Reserve section of the Library and can be purchased from the Macquarie University Co-op bookshops

Optional ActEd material

• The ActEd CT8, that can be purchased directly from ActEd. 

Advanced Textbooks

•Risk-Neutral Valuation - Pricing and Hedging of Financial Derivatives (1st Edition ); N. H. Bingham and R. Kiesel

•Quantitative Risk Management; Alexander J. McNeil, Rüdiger Frey and Paul Embrechts

•The Theory of Stochastic Processes; D. R. Cox and H. D. Miller

•Introduction to Probability Models (8th edition); Sheldon Ross

Technology Used and Required

Students need to be able to use a computer to analyse financial problems.  You should be able to use a word processing package (such as WORD), a spreadsheet (such as EXCEL), a statistical package (such as MINITAB) and a programming language (such as Visual Basic or Matlab).  Although the unit does not aim to teach students how to use computers, as this is covered in prerequisite units, you are encouraged to make use of spreadsheets and other software packages for the assignment.

Unit Web Page

To access the website, go to http://ilearn.mq.edu.au and login using your usual login and password.

Teaching and Learning Strategy

The unit is taught using two-hour lecture and two-hour tutorial each week.  You are expected to read lecture materials in advance of the lectures.  The tutorial is an opportunity for you to attempt questions for each section of work, or to ask questions. It is highly recommended to try to solve questions in advance of the tutorials. In addition to the tutorial, you should use the Discussion Board to ask questions or discuss concepts covered in the unit.

Changes since the Last Offering of this Unit

Nil.

Week Lecture Topics

1. Introduction of Stochastic Processes

2. Introduction of Stochastic Processes

3. Martingale, Introduction of Stochastic Calculus, Ito's lemma

4. Black-Scholes Option Pricing Model via Replication

5. Black-Scholes Option Pricing Model via Risk Neutral Probability Distribution, Combination of options  (Class Test 1 - Friday 1 September 1:00pm)

6. Greeks and Dynamic Hedging, Exotic Option Pricing

7. Interest Rate Models I (Short Rate Models) (Assignment due: Monday 11 September 2:00pm)

Semester Break

8. Labour Day (Monday 2 October)

9. Interest Rate Models II (Forward Rate Models) 

10. Credit Risk Models I (Firm-Value Model)

11. Class Test 2 (Monday 23 October 2:00pm)

12. Credit Risk Models II (Intensity-based Model)

13. Revision

· This unit uses research from external sources:

- Black, Fischer and Scholes, Myron. (1973): "The Pricing of Options and Corporate Liabilities". Journal of Political Economy, 81 (3): 637–654.

- Harrison, J. M., Kreps, D. M. (1979): "Martingales and arbitrage in multiperiod markets". J. Econ. Theory, 20, 381–408.

- Cox, J.C., J.E. Ingersoll and S.A. Ross (1985). "A Theory of the Term Structure of Interest Rates", Econometrica, 53: 385–407.

- Heath, D., Jarrow, R. and Morton, A. (1992). Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation, Econometrica, 60(1), 77-105.

- Merton, Robert C. (1974): "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates", Journal of Finance, Vol. 29, No. 2, 449-470.

- Jarrow, R. A., Lando, D. and Turnbull, S. M. (1997), A Markov Model for the Term Structure of Credit Risk Spreads, Review of Financial Studies, 10(2), 481–523.

· This unit gives you opportunities to conduct your own research.

· Professional practice in the area of options, market making and arbitrage will be covered by the guest lecturer, Mr. Jordan Brell in Optiver.