Search Help Dept. of Mathematics & Statistics
coloured square The University of Melbourne
620-302
Chance and Options Pricing
Semester 2, 2008

  • Uni handbook:

    entry for 620-302 Chance and Options Pricing

  • Lectures:

    Mon., Wedn., 10 - 11 am; Thurs., 11 am - 12 noon,
    Room 213 (Richard Berry Bldg)

  • Lecturer:

    Prof Kostya Borovkov

    Office hours for 620-302:

    Wedn., 1 - 3 pm (TBC)

    Room 225, Richard Berry Bldg,
    e-mail: kostyaZ@Zms.Zunimelb.edu.au

    Attention: antispam measure! You may wish to remove all the three literals Z from the above e-mail address before using it.

  • Pracs:

    Starting week 2 of semester, there is a 1-hour prac per week [Mon., 1 - 2 pm, Room 213 (Richard Berry Bldg)]

  • Handouts/downloads:

    By clicking here you will be able download the info handout to be distributed in class in the first lecture (Monday, 28 July 2008). But don't click the link yet.

    NB: Most of the downloadable from this page files are in the Adobe Acrobat format; you will need Adobe Acrobat Reader or the Acrobat plugin for your Web browser to view/print these documents. Most likely, the software has already been installed on the computer you are using. If not, Adobe Acrobat Reader is a freely distributable software, and you can click here to download it.

  • Lecture transparencies:

    For your convenience, we are putting copies of the slides used in lectures on the Web. The idea is to provide you with the copies of the slides prior to the lectures where the slides are to be used. You can download and print out the copies of the lecture transparencies in case you wish to bring them to class (which is our advice).

    NB: It may happen that not all the slides available on the Web will be (or have been) shown in lectures!

    For your convenience, here is a detailed outline of the course contents (with references to the slide numbers). Please note that this year, we plan to skip slides ##

    52.5-57.5 (52.5=2nd half of slide 52)
    127-128,
    157-167,
    200-201,
    232-239,
    288.5-291.5,
    300-302.5,
    324,326,
    330-339,
    350-356

    (may be continued). The material from these slides is not examinable.

  • Recommended books:

    You do not need to buy any books. The books below are recommended as additional optional reading only, in no particular order. Other editions of the texts below and other texts as well will be helpful, too. BUT: the lecture transparencies/handouts will cover the material that is examinable.

    Please note that some of the texts below may be put on reserve during semester!

    • S Shreve, Stochastic Calculus and Finance.
      http://www.math.cmu.edu/users/shreve/LectureNotes.pdf
      (1.2 MB, 364 pp.)
      + an extended hard-copy version (New York: Springer, 2004; in two volumes).
      [Available at: UniM ECO 332.0151922 SHRE SEVEN DAY LOAN + UniM Baill Res 332.0151922 SHRE TWO HOUR LOAN.]
    • A Etheridge, A course in financial calculus.
      Cambridge: Cambridge University Press, 2002.
      [Available at: UniM Maths 332.63222 ETHE + UniM Baill 332.63222.]
    • R Gibson, Option valuation: analyzing and pricing standardized option contracts. New York: McGraw-Hill, 1991.
      [Available at: UniM Baill Res 332.63228 GIBS (OVERNIGHT LOAN + TWO HOUR LOAN).]
    • T Mikosch, Elementary stochastic calculus with finance in view. Singapore: World Scientific Pub, 1998.
      [Available at: UniM Maths 519.2 MIKO.]
    • S M Ross, An introduction to mathematical finance. Cambridge : Cambridge University Press, 1999.
      [Available at: UniM Maths 332.60151 ROSS.]
    • M Kijima, Stochastic processes with applications to finance. Boca Raton, FL: Chapman & Hall/CRC, 2002. [Available at: UniM Maths 519.23 KIJI.]

    The following texts on related topics may be of help as well:

    • G R Grimmett, D R Stirzaker, Probability and random processes. Oxford: Oxford University Press, 2001. [Available at: UniM Maths 519.2 GRIM.]
    • A F Karr, Probability. New York: Springer, 1993. [Available at: UniM Maths 519.2 K148p.]
    • F C Klebaner, Introduction to stochastic calculus with applications. London: Imperial College Press, 1998. [Available at: UniM Maths 519.23 KLEB.]
    • B Oksendal, Stochastic differential equations : an introduction with applications. New York: Springer, 5th edn. 1998 (other editions are OK as well). [Available at: UniM Maths 519.2 OKSE.]

  • Problems:

    Problem sheets are (usually) distributed in lectures on Fridays and appear on the Web (see below) on the same day. A typical problem sheet consists of two parts: Tutorial problems and Homework problems.

  • Assessment:

    • You will be given weekly homeworks. Each week you will have to submit your solutions to the problems from the homework by the due time. Only one of the homework problems will be marked each time, and this problem will be chosen at random after the submission time. Late homeworks will receive no mark (unless you qualify for special consideration, in which case special arrangements may be made - please contact your tutor).

    • There will be a 3-hour end of semester exam.

    • Final Mark = 0.8 x Exam Mark (out of 100) + 0.2 x Total Homework Mark (out of 100)

  • Generic skills:

    In addition to learning specific technical skills that will assist you in your future careers in science, engineering, commerce, education or elsewhere, you will have the opportunity to develop in this subject generic skills that will assist you whatever your future career path:

    • you will develop problem-solving skills including engaging with unfamiliar problems and identifying relevant strategies;
    • you will develop analytical skills - the ability to construct and express logical arguments and to work in abstract or general terms to increase the clarity and efficiency of the analysis;
    • through interactions with fellow students, you will develop the ability to work in a team. The department distinguishes between ethical collaboration which is strongly encouraged and plagiarism, which is prohibited;
    • through practice classes and other interactions with fellow students, you will develop the ability to work in a team. The department distinguishes between ethical collaboration which is strongly encouraged and plagiarism, which is prohibited.

    (From the Department's generic statement.)

    [It is a University requirement that a generic skills statement appears on each subject's Web site.]

  • A brief summary of the QoT survey feedback:

    This subject was generally well received by students again last year. Most of the students' comments were like this:

    Difficult subject, but well taught.

    The subject may be not really easy indeed, but that can be viewed as one of its advantages as well. Also, one might wish to take into account that, according to its formal status during the last few years, the subject had to meet certain professional criteria which implied, in particular, that we had to cover quite a lot of difficult material. Again, this is not bad for a university subject. The content of the current version was made easier and is more accessible to students.

    As usual, worked solutions to all the tutorial/homework problems will be made available, in due time, on the Web.

    [It is a Faculty of Science requirement that a brief summary of the QoT survey feedback appears on each subject's Web site.]

    A bit more of students' feedback:

    Former students' testimonies:

    Prior to doing 620-302 Chance and Options Pricing, I could not find a single textbook that could clearly explain key financial maths concepts such as Martingales & Stochastic Calculus to beginners. Despite having a strong maths background, I found all related text books to be far too advanced. However, upon completing the subject, I found myself better equipped and able to understand these same textbooks and even more advanced professional materials, which was very rewarding and also emphasized the usefulness of the subject.

    The subject was well taught. It was broken down into clear and distinguishable topics (eg Martingales, Brownian Motion, Ito's formula, Stochastic Calculus etc). In all cases a thorough introduction to notations, introductory examples and necessary background theory was presented which proved to be invaluable in fully understanding the material.

    Also of great value was that each lecture began with a quick review of what was covered in the previous lecture. In addition, lecture handouts were made available in advance which allowed an opportunity for students to read and acquaint themselves with the material prior to the lecture. The lecturer clearly and patiently explained the material and was extremely helpful during consultations.

    I found 620-302 Chance and Options Pricing of tremendous interest and thoroughly rewarding for my profession and am very confident that upon completion of the subject, students will also feel this way.

    Michael Sioukas, Financial Analyst (did 620-302 in 2003)

    The subject was an inspiration for me to pursue further interest in the theory and application of stochastic processes, particularly in the actuarial field. The knowledge that I have gained in the subject is of considerable use and represents an anchor in understanding the basic theory of stochastic process. Thus this has assisted me in completing my further research during my honours year in Actuarial Studies. There is no doubt at all that this subject is challenging, but it is intellectually and mathematically stimulating. The complexity does in a sense make things more interesting.

    Chi Ling Cheong, actuarial honours student (did 300-332/620-302 in 2003)

  • Miscellanea

 

© The University of Melbourne 1994-2008. Disclaimer and Copyright Information.



Created: 25 June 2008
Last modified: recently (on 25 June  2008 or even later)
Authorised by: K Borovkov, Department of Mathematics and Statistics.

Maintained by: K.Borovkov, Department of Mathematics and Statistics.
Email: K.BorovkovZ@Zms.Zunimelb.edu.au

Attention: antispam measure! Remove all the three literals Z from the e-mail address in case you want me to receive your message.