Mathematics of Finance III (ACTL90003)

Graduate courseworkPoints: 12.5On Campus (Parkville)

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Overview

Availability
Semester 1
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This subject aims to provide students with grounding in advanced financial mathematics, covering option pricing under the binomial model; risk‐neutral pricing of derivative securities; Brownian motion; introduction to Itô΄ formula and SDEs; stochas􀆟 asset models; Black‐Scholes model; arbitrage and hedging; interest‐rate models; actuarial applications and simple models for credit risk.

Intended learning outcomes

On successful completion of this subject a student should be able to:



  • Demonstrate a knowledge of the properties of option prices, valuation methods and hedging techniques, and be able to apply these;
  • Show how to use binomial trees and lattices in valuing options;
  • Apply the Ito calculus;
  • Derive option prices under the Black-Scholes model;
  • Describe and apply in simple models, including the binomial model and the Black-Scholes model, the approach to pricing using deflators and demonstrate its equivalence to the risk-neutral pricing approach;
  • Demonstrate a knowledge of models of the term structure of interest rates;
  • Describe, as a computational tool, the risk-neutral approach to the pricing of zero coupon bonds and interest-rate derivatives for a general one-factor diffusion model for the risk-free rate of interest;
  • Demonstrate a knowledge of simple models for credit risk.

Generic skills

High level of development:

  • Written communication;
  • Problem solving;
  • Mathematical reasoning;
  • Simple models of credit risk;
  • Application of theory to practice;
  • Interpretation and analysis.

Last updated: 4 March 2025

Eligibility and requirements

Prerequisites

Admission into the MC-COMACTS Master of Commerce (Actuarial Science)

OR

Code Name Teaching period Credit Points
ACTL90002 Mathematics of Finance II
Semester 2 (On Campus - Parkville)
 12.5

Corequisites

None

Non-allowed subjects

Code Name Teaching period Credit Points
ACTL40004 Advanced Financial Mathematics
Semester 1 (On Campus - Parkville)
 12.5

Recommended background knowledge

Students should be competent in the use of Excel.

Inherent requirements (core participation requirements)

The University of Melbourne is committed to providing students with reasonable adjustments to assessment and participation under the Disability Standards for Education (2005), and the Assessment and Results Policy (MPF1326). Students are expected to meet the core participation requirements for their course. These can be viewed under Entry and Participation Requirements for the course outlines in the Handbook.

Further details on how to seek academic adjustments can be found on the Student Equity and Disability Support website: http://services.unimelb.edu.au/student-equity/home

Last updated: 4 March 2025

Assessment

DescriptionTimingPercentage

Mid-semester exam

  • 1 hours
Mid semester10%

Assignment

  • 1500 words
From Week 11 to Week 1220%

End-of-semester exam

  • 2 hours
Hurdle requirement: Students must pass the final exam to pass the subject.		During the examination period70%

Last updated: 4 March 2025

Dates & times

  • Semester 1
    Principal coordinatorYuyu Chen
    Mode of deliveryOn Campus (Parkville)
    Contact hoursThree 1-hour recorded lectures.
    Total time commitment170 hours
    Teaching period26 February 2024 to 26 May 2024
    Last self-enrol date 8 March 2024
    Census date 3 April 2024
    Last date to withdraw without fail 3 May 2024
    Assessment period ends21 June 2024

    Semester 1 contact information

    Email: yuyu.chen@unimelb.edu.au

What do these dates mean

Visit this webpage to find out about these key dates, including how they impact on:

  • Your tuition fees, academic transcript and statements.
  • And for Commonwealth Supported students, your:
       -  Student Learning Entitlement. This applies to all students enrolled in a Commonwealth Supported Place (CSP).
     

    Subjects withdrawn after the census date (including up to the ‘last day to withdraw without fail’) count toward the Student Learning Entitlement.

Last updated: 4 March 2025

Further information

  • Texts

    Prescribed texts

    You will be advised of prescribed texts by your lecturer.

  • Related Handbook entries

    This subject contributes to the following:

    TypeName
    CourseGraduate Diploma in Actuarial Science
    CourseMaster of Commerce (Actuarial Science)
  • Available through the Community Access Program

    About the Community Access Program (CAP)

    This subject is available through the Community Access Program (also called Single Subject Studies) which allows you to enrol in single subjects offered by the University of Melbourne, without the commitment required to complete a whole degree.

    Please note Single Subject Studies via Community Access Program is not available to student visa holders or applicants

    Entry requirements including prerequisites may apply. Please refer to the CAP applications page for further information.

  • Available to Study Abroad and/or Study Exchange Students

    This subject is available to students studying at the University from eligible overseas institutions on exchange and study abroad. Students are required to satisfy any listed requirements, such as pre- and co-requisites, for enrolment in the subject.

Last updated: 4 March 2025