STK-MAT4700 – Introduction to Mathematical Finance and Investment Theory

The students will understand the underlying principles of modern finance and investment theory. They will be given the mathematical theoretical and practical skills to be used in quantifying the price of financial contracts, in computing the hedging strategies and in making investment choices which balance profit and risk. More particularly

• develop hedging strategies for derivatives in tree-models
• price using no-arbitrage and hedging principles in tree-models
• know the concept of risk-neutral probability
• develop the Black-Scholes option pricing formula as a limit of tree-model
• apply the Black-Scholes formula to price and hedge plain-vanilla options in finance
• can create portfolios that balance profit and risk optimally
• master LaTeX as an electronic tool for writing mathematics.

Students admitted at UiO must apply for courses in Studentweb. Students enrolled in other Master's Degree Programmes can, on application, be admitted to the course if this is cleared by their own study programme.

Nordic citizens and applicants residing in the Nordic countries may apply to take this course as a single course student.

If you are not already enrolled as a student at UiO, please see our information about admission requirements and procedures for international applicants.

• MAT1100 – Calculus
• MAT1110 – Calculus and Linear Algebra
• MAT1120 – Linear Algebra / MAT1125 – Advanced linear algebra
• STK1100 – Probability and Statistical Modelling
• It may also be useful to have taken STK2130 – Modelling by Stochastic Processes

4 hours of lectures/exercises per week throughout the semester.

The course may be taught in Norwegian if the lecturer and all students at the first lecture agree to it.

Final written exam which counts 100 % towards the final grade.

This course has 1 mandatory assignment that must be approved before you can sit the final exam. Mandatory assignments must be written with a typesetting software for writing mathematics (e.g. LaTeX).

It will also be counted as one of the three attempts to sit the exam for this course, if you sit the exam for one of the following courses: MAT2700 – Introduction to mathematical finance and investment theory (continued), STK-MAT3700 – Introduction to Mathematical Finance and Investment Theory

Students who can document a valid reason for absence from the regular examination are offered a postponed examination at the beginning of the next semester.

Re-scheduled examinations are not offered to students who withdraw during, or did not pass, the original examination.