Mathematical Statistics: Valuation of Derivative Assets

In this course, you’ll learn how financial contracts such as options, bonds, and swaps, can be valued using mathematical statistics. You’ll gain both theoretical and practical knowledge in applying stochastic calculus and simulation techniques to price various types of derivatives. The course is ideal if you want to combine mathematics with finance and gain a deeper understanding of how financial markets work.

The course is elective within certain specializations of the Bachelor’s and Master’s programmes in science at Lund University. It can also be takenas a stand-alone course.

The language of instruction is English.

The course includes lectures, exercises, and computer labs. Participation in the labs is mandatory and gives you hands-on experience in using mathematical models and simulation techniques—such as Monte Carlo methods—to value financial contracts. You’ll also work with variance reduction techniques like control variates and antithetic variables.

The course is divided into two parts. First, you’ll study option theory in discrete time using tree models. Then, you’ll move on to continuous-time models, focusing on stochastic differential equations. You’ll learn about Brownian motion, stochastic integrals, Itos formula, and change of measure, and apply these concepts to option pricing in both equity and interest rate markets. You’ll also derive and apply the Black-Scholes formula.

Assessment is based on a written exam, along with approved lab work and assignments.

Prerequisites

For admission to the course knowledge equivalent to the courses MASA02, Mathematical Statistics: Basic Course, 15 credits and at least one MASC03, Markov processes, 7.5 credits or MASC14 Stationary stochastic processes 7.5 credits are required together with English B.

Selection criteria

Seats are allocated according to: ECTS (HPAV): 100 %.

Tuition fees for non-EU/EEA citizens

Citizens of countries outside:

• The European Union (EU)
• The European Economic Area (EEA) and
• Switzerland

are required to pay tuition fees. You pay an instalment of the tuition fee in advance of each
semester.

Tuition fees, payments and exemptions

Full programme/course tuition fee: SEK 23,125
First payment: SEK 23,125

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Note that you may also need to pay an application fee, or provide proof of exemption.

Application fee

No tuition fees for citizens of the EU, EEA and Switzerland

There are no tuition fees for citizens of the European Union (EU), the European Economic Area (EEA) and Switzerland.