Topics include: probability concepts; martingales in actuarial studies and finance; applications of Brownian motion, geometric Brownian motion and the lognormal distribution; stochastic calculus; models for financial time series; applications of Monte Carlo simulation in insurance and finance.
Intended learning outcomes
Have an understanding of some probability concepts to solve problems using sigma-algebras, probability measures, random variables, distributions and expectations of random variables;
Describe conditional expectations and apply their properties to simplify calculations;
Construct and apply martingales in solving problems in insurance and finance;
Gain basic knowledge of Brownian motion and geometric Brownian motion.
Perform calculations with stochastic integrals and Ito's formula.
Generic skills
High level of development: written communication; problem solving; statistical reasoning; application of theory to practice; synthesis of data and other information.