MATHEMATICAL MODELS FOR FINANCIAL MARKETS
Knowledge and understanding: students should know the techniques and mathematical tools used for the evaluation of financial contracts.
Applying knowledge and understanding: students should be able to apply the acquired knowledge to evaluate contracts.
Making judgements: students should be able to use the acquired knowledge autonomously, by also applying them to other financial problems.
Communication skills: students should clearly describe the methodologies adopted for solving the exercises in the written exam, and answer in a clear and reasoned way to the questions of the oral exam.
Learning skills: students should be able to show a good learning ability, by widening, for example, their knowledge with use of relevant bibliographic references.
Contents of Calculus.
The course content can be approximatively split into the following three blocks:
I block (24 hours):
The basic theory of interest: principal and interest. Present value. Present and future values of streams. Simple interest. Continuous compounding.
Fixed-income securities. Rating. Value formulas. Yield.
Basic sources of risk. Interest rate risk. Credit risk. Inflation risk. Foreign exchange risk.
II block (24 hours):
Internal rate of return.
No-arbitrage pricing. Coupon and zero-coupon bonds. Spot and forward rates.
The term structure of interest rates. The yield curve. Par yield. Bootstrapping.
Duration. Immunization. Convexity.
Basics of financial mathematics for the evaluation of financial contracts.
The course is organized in classroom lectures and laboratory; laboratory sessions discuss the use of the spreadsheet for financial applications.
The final exam consists of written part and an an oral part. Students attending the course could take two midterm written exams that could exempt them from the final written part. If the written part (the midterm exams) mark is sufficient, the student will hold the oral part. The mark depends on both the marks of the written part and the oral part.