This module provides an overview of analytical careers in finance and explores the mathematical techniques used by actuaries, accountants and financial analysts. Students will learn about different types of financials assets, such as shares and bonds and how to work out how much they are worth. They will also look at different types of debt and learn how mortgages and other loans are calculated. Developing these themes, the module will explain how to use maths to make financial decisions, such as how much an investor should pay for a financial asset or how a company can decide which projects to invest in or how much money to borrow. Risk management is a vital part of most mathematical careers in finance so the module will also cover different mathematical techniques for measuring and mitigating financial risk. Extension topics may include complex derivatives, economic theories of finance and the dangers of misusing mathematics. The module provides an opportunity to apply complex mathematical techniques to important real-world questions and is excellent preparation for those considering a financial career.
Introduction to financial mathematics: Key uses of mathematics in finance; key practitioners of financial mathematics.
Financial valuation and cash flow analysis: Discounting, Interest rates and time requirements, Future and Present value. Project Evaluation.
Characteristics and valuation of different financial securities: Debt capital, bonds and stocks, valuation of bonds and stocks.
Loans and interest rates: term structure of interest rates, spot and forward rates, types of loan, APR, loan schedules.
Additional topics that may be covered: arbitrage and forward contracts, efficient markets hypothesis, pricing and valuing forward contracts, option pricing and the Black Scholes model, credit derivatives and systemic risks, limitations of mathematical modelling.
42 contact hours, comprising lectures, exercise classes and revision sessions
108 hours of private study
Total number of study hours: 150
Autumn
Assessment 1 (10-15 hrs) 20%
Assessment 2 (10-15 hrs) 20%
Examination (2 hours) 60%
Reassessment Methods
Like-for-like
Herbert B. Mayo, Basic Finance: An Introduction to Financial Institutions, Investments and Management, 10th Edition, South-Western College Pub, 2011.
Garratt, S.J. An introduction to the mathematics of finance. A deterministic approach, 2nd Edition, Butterworth-Heinemann, 2013.
See the library reading list for this module (Canterbury)
1. demonstrate a systematic understanding of several important applications of mathematics in finance and an understanding of the work of the main practitioners of mathematical finance including actuaries, investment analysts and accountants;
2. demonstrate the capability to make sound judgements in accordance with the basic theories and concepts and demonstrate a reasonable level of skill in calculation and manipulation of the material in the following areas: time value of money, characteristics of different financial securities, valuation of securities, project evaluation and decisions, interest rates, loans;
3. apply key mathematical concepts and methods in well-defined contexts in finance, showing an ability to evaluate the appropriateness of different approaches to solving problems in this area.
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