ICM299-Numerical Methods for Financial Engineering

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:7
Terms in which taught: Spring term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites:
Modules excluded:
Module version for: 2016/7

Module Convenor: Dr Emese Lazar

Email: e.lazar@icmacentre.ac.uk

Summary module description:
This module introduces the major numerical methods required for quantitative work in finance, with a particular emphasis on the tools required for the implementation of the major derivative pricing models.

Aims:

Assessable learning outcomes:
By the end of the module, it is expected that students will be able to:
• Understand the basic concepts of numerical approximation
• Solve linear and nonlinear systems of equations
• Implement optimization and calibration methods
• Implement interpolation methods
• Build high standard computer programmes for derivative pricing models using
• Tree-based methods
• Monte Carlo simulations
• Finite Difference methods

Additional outcomes:
Students will learn the fundamental techniques that will enable them to pursue further research in computational finance.

Outline content:
• Foundations of Numerical Computations
• Numerical solution of Systems of Linear and Nonlinear Equations
• Numerical Optimization techniques
• Calibration methods
• Interpolation methods
• Simulation of Stochastic Differential Equations
• Pricing of financial derivatives Monte Carlo simulations
• Pricing of financial derivatives with Binomial and Trinomial Trees
• Pricing of financial derivatives Finite Difference methods

Brief description of teaching and learning methods:
Teaching is via lectures enhanced with practical exercises, with reference to recommended textbooks and journal articles.

Contact hours:
  Autumn Spring Summer
Lectures 20
Practicals classes and workshops 12
Guided independent study 168
       
Total hours by term 200.00
       
Total hours for module 200.00

Summative Assessment Methods:
Method Percentage
Written exam 50
Written assignment including essay 50

Other information on summative assessment:
The written assignment is an individual project

Formative assessment methods:

Penalties for late submission:
Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspx

Length of examination:
2 hours closed book written examination

Requirements for a pass:
50% weighted average mark

Reassessment arrangements:
By written examination only, as part of the overall examination arrangements for the MSc programme.

Additional Costs (specified where applicable):
1) Required text books: Manfred Gilli, Dietmar Maringer and Enrico Schumann: Numerical Methods and Optimization in Finance Academic Press, 2011, ISBN-10: 0123756626, £63.99.

2) Specialist equipment or materials:
3) Specialist clothing, footwear or headgear:
4) Printing and binding:
5) Computers and devices with a particular specification:
6) Travel, accommodation and subsistence:

Last updated: 21 December 2016

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