This course provides an introduction to the theory and practice of derivative pricing and hedging with emphasis on the application of continuous time stochastic processes. The course is divided into three main sections. In the first section we revisit background material on markets, forward and futures contracts, and concepts related to hedging, speculation and arbitrage introduced in FINM2002. In the second section the mathematical machinery needed for the risk-neutral valuation of derivative securities is established. Topics include introduction to stochastic calculus; continuous time concepts; applications to asset pricing and derivatives; hedging principles. In the last section of the course a number of applications in the area of quantitative finance are considered.

Take-home mid term exam worth 30%. This exam will be styled like an assignment, with 6 questions with an expected completion time of around 3 hours.

Final Examination (worth 70%)

At least three contact hours per week plus private study time.

FINM2002 Financial Instruments and Risk Management and STAT3004 Stochastic Modelling. 

Note:

Students in the final year of the Bachelor of Finance and completing the Quantitative Finance major are permitted to  enrol in STAT3004 Stochastic Modelling and FINM3003 Continuous Time Finance concurrently.

See Course Outline:  http://ecocomm.anu.edu.au/courses/outline/FINM3003.pdf

For further information please refer to http://ecocomm.anu.edu.au/courses/course.asp?code=FINM3003