•      About OUHK     

  •      Admissions     

  •      Academics     

  •     Administration    

  •      Library     

  •     Research    

  • Registration

     Credit exemptions  Finances
    Quantitative Models for Financial Risk
    MATH S390
      More information: Course Guide
    Quantitative Models for Financial Risk
    Course Start Date
    Spr 2020
    Course Level
    Length in Terms
    1 term
    Fees ($) (including lab fees)
    Future Terms
    Spr 2021, Spr 2022

    This course has been included in the list of reimbursable courses under the Continuing Education Fund. Click HERE for details.

    Quota and Schedule
    Start Date
    Course Level Length in Terms Credits
    Fees ($)
    (including lab fees)
    Future Terms
    Spr 2020
    Higher 1 term 5
    Spr 2021, Spr 2022
    This course has been included in the list of reimbursable courses under the Continuing Education Fund. Click HERE for details.

    Course Coordinator: Dr C F Chu, BEng, MPhil, PhD (CUHK)

    Course Developer: Dr Chi-wang Chan, OUHK

    MATH S390 Quantitative Models for Financial Risk is a 5-credit, one-semester, higher-level course. MATH S390 is about the use of mathematics to solve real-life applications. You will learn how to represent real world financial problems through various types of mathematical methods (e.g. Black–Scholes models).

    This course is presented at 12-month intervals.

    Advisory prerequisite(s)
    Students are advised to have studied a basic statistics course such as MATH S248 / MATH S280 and a mathematics course such as MATH S207 / MATH S221, or to have achieved an equivalent level before studying this course.

    This course aims to:

    • provide students with a basic understanding of various option pricing formulae, hedging techniques, bond models and interest rates.

    • introduce different types of financial risks and the common quantitative methods used to set up financial derivative models, and to analyze and interpret various problems and risks arising in financial engineering.

    • introduce basic statistical and mathematical theory, in particular the stochastic and continuous-time differentiation models required for computing the pricing of financial options and other derivative securities for the assessment of risk.

    • enhance students’ ability to elaborate on the assumptions for developing options models, and to equip students with the ideas of forwards and options and the concept of non-arbitrage in order to consider the pricing of financial derivatives.

    • use the binomial model and the Black-Scholes option pricing model to interpret the valuation of European and American options.

    • develop students’ professional skills in stochastic calculus and its applications for risk analysis and finance.

    • teach students the properties of Brownian motion and how to apply them to evaluate the price of stock options problems.

    • develop quantitative financial risk models through the multi-variable calculus and differential equations.

    The course covers the following topics:

    Unit 1 Introduction to financial risk and quantitative process

    • Basic terminologies used in the financial industry

    • Various financial instrument and their risks

    • Application of the game theory method to explain the idea of arbitrage

    Unit 2 Tree models for stocks and options

    • The principle of no-arbitrage opportunity in evaluation of financial instrument, and application to price linear derivative securities

    • Calculating the payoff, and interpreting the profit of basic derivatives contracts, such as forward contracts, futures contracts, American and European put and call options, simple commodity swaps, and interest rate swaps

    Unit 3 Mathematical methods for the Black–Scholes model

    • Application of the stochastic calculus to model Brownian motion, and using Ito’s Lemma to derive the stochastic differential equations

    • Application of the no-arbitrage principle and risk-neutral (martingale) pricing

    • Deriving a Black–Scholes differential equation for pricing option

    • Adopting an appropriate method to solve the Black–Scholes differential equation analytically

    • Interpreting the overall investment return based on the computational results

    Unit 4 Risk models in hedging

    • Constructing a hedging strategy for a variety of risks

    • Identifying cash flows in swap transactions

    • Evaluating alternative hedge positions

    Unit 5 Quantitative methods for bond models and interest rate options

    • More sophisticated risk models used by the financial analyst/planner to manage stocks, bonds and mixed portfolios

    • Calculations of yields, continuous compounding, and par, forward and zero yield curves

    Unit 6 Financial risk models in practice

    • Modelling the payoff structures of CBBCs & Accumulator contracts

    • Discussion of volatility smile, volatility matrices and the volatility term structure

    • Evaluating the implied volatility under the Black-Scholes model framework

    • Calculating the Value at Risk for single-asset and multi-asset cases

    Learning support
    There will be six two-hour tutorials and three surgeries throughout the course.

    There are three assignments (best two out of three will be counted) and a final examination. Students are required to submit assignments via the Online Learning Environment (OLE).

    Online requirement
    This course is supported by the Online Learning Environment (OLE). You can find the latest course information from the OLE. Through the OLE, you can communicate electronically with your tutor and the Course Coordinator as well as other students. To access the OLE, students will need to have access to the Internet. The use of the OLE is required for the study of this course and you can use it to submit assignments.

    Students will need access to a computer with an Internet connection and spreadsheet software, e.g. Excel. A scientific calculator is also necessary.

    Set book(s)
    There are no set books for this course.

    Student with disabilities or special educational needs
    The visual components of this course may cause difficulties for students with visual impairment. You are encouraged to seek the advice from the Course Coordinator before enrolling on the course.

    Accessibility | Privacy policies | Terms and policies | Webmaster
    © 2020 by The Open University of Hong Kong. All Rights Reserved.
    Site Map Site map
    About OUHK
    President's Message
    Vision & Mission
    Strategic Plan
    Governance & Organization
    Principal Officers
    Honorary Graduates & University Fellows
    Facts & Figures
    School of Arts and Social Sciences
    Lee Shau Kee School of Business and Administration
    School of Education and Languages
    School of Nursing and Health Studies
    School of Science and Technology
    Li Ka Shing School of Professional and Continuing Education (LiPACE)
    Educational Technology and Development Unit
    Facilities Management Unit
    Finance Unit
    Human Resources Unit
    Information Technology Unit
    Mainland and International Affairs Office
    OUHK Shenzhen Office
    Public Affairs Unit
    Quality Assurance Office
    Research Office
    Student Affairs Office
    Research Postgraduate Programmes
    Postgraduate Programmes
    Postgraduate Programmes (Part-time)
    Undergraduate Programmes
    Undergraduate Programmes (Part-time)
    Sub-degree Programmes
    Sub-degree Programmes (Part-time)
    Continuing Professional Development (CPD) Programmes
    Programmes from LiPACE
    Annual Review 2017-2018
    Choose your study programme
    Events Calendar
    Giving to OUHK
    Information for
    Prospective Students
    Current Students
    Jockey Club Home Health Watch Programme
    Media coverage
    Motto: Disce, Progredere, Crea
    Open Learning Resources
    iTunes U
    Knowledge for All
    OUHK Great Speakers Series
    Privacy policies
    Terms and policies
    Research Office (RO)
    RGC Funded Projects
    Institutional Repository
    Other Funded Research Projects
    Staff Publications
    Research Degree Programmes
    External Research Funding
    Internal Research Funding
    External Funding for Development Project
    Site Search
    Social Media
    YouTube Channel
    Student Life & Support
    Students' Achievements
    Switch on to e-materials
    Useful Information
    Adverse weather arrangements
    Campus location
    Job Openings
    Contact us
    Telephone: (852-2711-2100)
    Facsimile: (852-2715-0760)
    Email: info@ouhk.edu.hk
    View the videos of Full-time Face-to-face Undergraduate Programme selected seminars
    Web for All
    Back To Top