HALMSTAD UNIVERSITY

Phone +46 35 16 71 00 www.hh.se School of Information Science, Computer and Electrical Engineering

SYLLABUS
translated from Swedish Page 1 (2) Course Code: MA8002 / 2,1

Numerical Methods in Finance, 7.5 credits

Numeriska metoder i nansmatematik, 7.5 hp Second level Main eld: Mathematics
Syllabus is adopted by the School of Information Science, Computer and Electrical Engineering (20080901), effective starting autumn 2008.

Placement in the Academic System The course is included as a compulsory course in the Masters Programme in Financial Mathematics 60 credits. Prerequisites and Conditions of Admission Mathematics 60 credits, including analysis, mathematical sta tistics and differential equations of at least 7.5 credits each. Course Objectives The course aims for the student to acquire knowledge of modern instruments and methods within numerical analysis as well as being able to apply this knowledge and skills in nancial mathematics
The course is included in the main area of the Masters Programme in Financial Mathematics. Upon completion of the course the student shall be able to:

Binomial trees. Alternative procedures for con structing trees. MonteCarlo simulation and American options Finite difference methods. The nitedifference mesh. Explicit nitedifference method. Implicit nite diffe rence methods. The fully implicit method. The Crank Nicolson method. Methods of American options. Finite difference for mulation. The constrained matrix problem. Projected SOR. The time stepping algorithm. Convergence of the method. Examples. Binomial methods. The discrete random walk. Valua tion of options. European options. American options. Dividend yields. New methods for nonlinear partial differential equa tions of parabolic type. Examples. Practical part: Shaping of a portfolio with one stock and one derivative product. Using the current deve lopment on the market hedge this portfolio with com mon numerical methods. Teaching Formats Teaching consists of lectures.
Teaching is in English.

describe alternative methods for creating trees, espe cially binomial trees understand and apply Monte Carlo simulation understand and apply the nitedifference method, the explicit nitedifference method, the implicit nite difference method, the fully implicit method, and the CrankNicolson method understand and apply the American option method, nite difference formulation, the constrained matrix problem, projected SOR, the time stepping algorithm as well as give examples of these methods understand and apply the binomial method describe and apply solution methods for valuation of European options and American options Primary Contents The course contents primarily revolve around the equations which are found within various applications in nancial mat hematics

Examination The overall grades of Fail, 3, 4 or 5. Written or oral examination. Course Evaluation Course evaluation is part of the course. This evaluation should offer guidance in the future development and planning of the course. Course evaluations should be documented and made available to the students.

Page 2 (2) MA8002 / 2.1

Course Literature
J. Stoer, R. Bulirsch. Introduction to numerical analysis. Springer, 2nd edition, 1993. ISBN 038795452X. P. Wilmott, S. Howison and J. Dewynne. The Mathematics of Financial Derivates. Cambridge University Press, 1998. Y. K. Kwok. Mathematical Models of Financial Derivates. Springer Finance, 1998.