STK-MAT4700 – Introduction to Mathematical Finance and Investment Theory
Changes in the course due to coronavirus
Autumn 2020 we plan for teaching and examinations to be conducted as described in the course description and on semester pages. However, changes may occur due to the corona situation. You will receive notifications about any changes at the semester page and/or in Canvas.
Spring 2020: Teaching and examinations was digitilized. See changes and common guidelines for exams at the MN faculty spring 2020.
The course will give an introduction to the most important notions and problems in mathematical finance. The theory of arbitrage for pricing and hedging derivatives (options) will be studied in the context of discrete and continuous time stochastic models, with the famous Black and Scholes option pricing formula as a highlight. Moreover the course will focus on the theory of investments with special stress given to utility optimization and the Markowitz´ theory for optimal portfolio choice.
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.
Admission to the course
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.
Recommended previous knowledge
- MAT1100 – Calculus
- MAT1110 – Calculus and Linear Algebra
- MAT1120 – Linear Algebra
- STK1100 – Probability and Statistical Modelling
- It may also be useful to have taken STK2130 – Modelling by Stochastic Processes
- 10 credits overlap with STK-MAT3700 – Introduction to Mathematical Finance and Investment Theory.
- 10 credits overlap with MØ105.
- 8 credits overlap with MAT2700 – Introduction to mathematical finance and investment theory (continued).
- 8 credits overlap with ECON4510 – Finance Theory.
- 5 credits overlap with ECON4515 – Finance Theory 1: Portfolio choice and equilibrium models (discontinued).
- 5 credits overlap with ECON4520 – Finance Theory 2: Option theory with applications (discontinued).
- 3 credits overlap with STK4510 – Introduction to methods and techniques in financial mathematics (discontinued).
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 4 hours which counts 100 % towards the final grade.
This course has 1 mandatory assignment that must be approved before you can sit the final exam.
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
Examination support material
No examination support material is allowed.
Language of examination
Courses taught in English will only offer the exam paper in English. You may write your examination paper in Norwegian, Swedish, Danish or English.
Grades are awarded on a scale from A to F, where A is the best grade and F is a fail. Read more about the grading system.
Resit an examination
This course offers both postponed and resit of examination. Read more: