Numerical Finance - 2019 entry

Numerical and computational methods are used widely in the field of quantitative finance. In this module you will study some of the most important of these methods, with an emphasis on Monte Carlo and lattice methods for option pricing. We further extend these methods to price exotic options and calculate risk metrics such as Value-at Risk. Additionally you will study methods to price credit derivatives and counter-party risk. This module is computational in nature and you are expected to implement these methods in C++ and additionally MATLAB.

Pre-Req - ECMM703, ECMM737

Co Req - ECMM706, ECMM738

The aim of this module is to provide a solid grounding in modern numerical and computational methods for option pricing and portfolio risk management. There will be some emphasis on potential interview questions where appropriate.
 

On successful completion of this module you should be able to:

Module Specific Skills and Knowledge

Discipline Specific Skills and Knowledge

Introduction to Options

Options and Payoff Functions, Stochastic Processes and Risk Neutral Valuation, The Black-Scholes equation, Binomial Methods and Algorithms.

Monte Carlo Methods

Computation of Random Numbers, Uniform Random Numbers, Linear Congruential and Fibonacci Generators, Random Vectors,
Normally Distributed Random Numbers, Correlated Normal Random Numbers Correlation Matrices, Cholesky Decomposition, Eigenvalue Methods, Low Discrepancy Sequences and Measures, Monte Carlo Simulation, Monte Carlo Integral, Monte Carlo Error,
Variance Reduction Methods, Antithetic Methods, Control Variate Methods, Monte Carlo for American Options, Quasi Monte Carlo Methods.

Finite Difference Methods

Finite Difference Methods, Approximation Methods, Explicit and Implicit Methods, Crank-Nicolson Method

Risk Measurement
Credit Derivatives and Risk Management, Hazard Rates, Credit Spreads, Credit Default Swaps, Collateralised Debt Obligations, Value at Risk, Credit Value at Risk, Historic Value at Risk Methods, Monte-Carlo Value at Risk Methods, Expected Shortfall, Credit Value Adjustment

If a module is normally assessed entirely by coursework, all referred/deferred assessments will normally be by assignment.

If a module is normally assessed by examination or examination plus coursework, referred and deferred assessment will normally be by examination. For referrals, only the examination will count, a mark of 50% being awarded if the examination is passed. For deferrals, candidates will be awarded the higher of the deferred examination mark or the deferred examination mark combined with the original coursework mark.

Basic reading:

ELE: http://vle.exeter.ac.uk/

Web based and Electronic Resources:

Other Resources:

Reading list for this module: