AMH4 Advanced Option Pricing

This page relates to the Applied Mathematics Honours course "Advanced Option Pricing".

The lecturer for this course is Peter Buchen.

For general information on honours in the School of Mathematics and Statistics, refer to the relevant honours handbook.

An important and large part of modern quantitative finance is concerned with the valuation of derivative securities including not only vanilla calls and puts but also the vast family of exotic options. The latter includes barrier options, lookback options, compound options, American options, Asian options, rainbow options, credit derivatives and many others.

This unit develops a none-too-technical mathematical framework for obtaining the fair or arbitrage-free prices of such derivative securities. This framework includes the two main approaches in popular use: the risk-neutral expectations method and the corresponding PDE method. Students will be introduced to the necessary stochastic calculus methods that underlie both approaches. Some computational methods employed in industry will also be discussed.

While a good understanding of mathematical statistics and PDE's would be an advantage, the unit assumes neither. Thus students and practitioners with strong analytical skills will still benefit from this unit, regarded as one of the most advanced academic programs of its kind in the country.

This subject is also available as a stand-alone unit, and can be taken by anybody with an adequate mathematical background. Further information is available here.