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:
Current from: 2018/9

Email: p.k.sweby@reading.ac.uk

Type of module:

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.

Summative assessment- Examinations:
2 hours closed book written examination

Summative assessment- Coursework and in-class tests:

The written assignment is an individual project to be submitted in week 1 of the Summer term.

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

Assessment requirements for a pass:
50% weighted average mark

Reassessment arrangements:

By written examination only, to be taken in August/September, as part of the overall examination arrangements for the MSc programme

Additional Costs (specified where applicable):

1) Suggested 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: 31 July 2018