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Financial Calculus and Project Analysis

Objectives

This course focuses on the application of mathematics and statistics to the world of finance. Designed to provide students an introduction to start applying the skills developed during the bachelor program to financial applications this course serves as an excellent introduction to further study in finance or moving into a finance related role. Drawing broadly from topics in financial mathematics, financial calculus, quantitative finance, and computational finance we examine both underlying mathematical theories and applications to real cases with computational models. The course covers financial portfolio theory, capital market theory, and the theory and pricing of financial securities, options, and derivatives.

General characterization

Code

100230

Credits

4.0

Responsible teacher

Ian James Scott

Hours

Weekly - Available soon

Total - Available soon

Teaching language

Portuguese. If there are Erasmus students, classes will be taught in English

Prerequisites

Students should have taken previous courses in probability and calculus. It is strongly recommended that students have familiarity with a programming language, ideally R.

Classes will be delivered in English. As such students are expected to have a good level of comprehension and communication in English.

Bibliography

  1. Chambers, D. R., & Lu, Q. (2021). Introduction to Financial Mathematics: With Computer Applications. CRC Press.
  2. Petters, Arlie O., and Xiaoying Dong. "An introduction to mathematical finance with applications." New York, NY: Springer 10 (2016): 978-1.

Teaching method

The curricular unit is based on a mix between theoretical and practical lessons with a strong, active learning component. During each session, students are exposed to new concepts and methodologies, case studies, and the resolution of examples.

Evaluation Elements:

EE1 – Mid-term exam (25%)

EE1 – Practical assessment (30%)

EE2 - Exam (45%).

Evaluation method

To successfully finish this curricular unit, students need to score a minimum of 9.5 points. The grading is divided into two seasons. Attendance in the second is optional for students that passed the curricular unit in the first season and can be used to improve their grade.

Continuous Evaluation (1st Call)

The first season is dedicated to continuous evaluation and replaces the first Exam call. The continuous evaluation includes the following two assessment components:

  1. EE1 Exam (45%) – This is an individual assessment activity. The exam is multichoice.
  2. EE2 Mid-term exam (25%) – This is an individual assessment activity. The exam is multichoice.
  3. EE3 Practical assignments (30%) – 2-3 small practical assignments completed during the course.

Final Exam (2nd Call)

The second grading season will take place in July and consists of a multiple-choice exam.

The Exam is made up of 40 multiple-choice questions.

Please note: As this exam covers the full course (practical and theoretical components) it is typically significantly more difficult than the first exam that has a larger focus on theoretical components. Student averages are significantly lower for this exam typically.

Subject matter

The curricular unit is organized in four Learning Units (LU):

LU0. Introduction and time value of money

LU1. Financial portfolios and capital markets

LU2. Pricing securities including binomial trees and stochastic calculus

LU3. Derivatives theory and modelling

LU4. Options theory and modelling.