Study-Unit Description

Study-Unit Description


CODE SOR1440

 
TITLE Principles of Financial Mathematics

 
UM LEVEL 01 - Year 1 in Modular Undergraduate Course

 
MQF LEVEL Not Applicable

 
ECTS CREDITS 4

 
DEPARTMENT Statistics and Operations Research

 
DESCRIPTION This Study-unit will centre around the following topics:

• Bonds
• Stocks
• Derivatives
• Organization of Financial Markets
• Transaction Costs
• Calculation of Interest rates
• Term Structure of Interest rates
• Nominal and Effective Rates
• Present Values, Accumulations and Annuities
• The Loan Schedule for a Level Annuity
• Interest and Annuities payable p-thly
• Different Interest Rates for Lending and Borrowing
• Internal Rate of Return
• Yield curves
• Capital Redemption Policies
• Duration, Convexity and Immunization

Study-unit Aims:

• Familiarize with financial markets including bonds, stocks and equities.

• Familiarize with instruments used in these market including cash instruments and derivatives.

• Cover classical theory of compound interest and provide a solid grounding in mathematical techniques related to financial concepts, including Term Structures of interest rates, Present Values, Accumulations and Annuities.

• Introduce capital redemption policies and fixed-interest securities.

• Describe the valuation of assets and liabilities, yield curves, volatility and Redington's theory of immunization.

Learning Outcomes:

1. Knowledge & Understanding:
By the end of the study-unit the student will be able to:

• Discriminate between different financial markets.

• Have a solid grounding on financial concepts including term structures of interest rates, present values, accumulations and annuities.

• Compare investment projects using net present values and yields.

• Familiarize with immunization techniques for an investment.

2. Skills (including transferable [generic] skills):
By the end of the study-unit the student will be able to:

• Use the principles and techniques described in the study unit to work out problems related to finance.

• Gain valuable practical insight into the different financial structures.

Main Text/s and any supplementary readings:

• McCutcheon, J.J and Scott, W.F. (1986) An Introduction to the Mathematics of Finance, Umi-Pub
• Galitz, L. (1995), Financial Engineering, Pitman Publishing
• Hull, J.C. (1993) Options, Futures and Other Derivative Securities, Prentice Hall Inc.
• Donald D.W.A. (1975) Compound Interest and Annuities certain - Second Edition, Heinemann
• Roll, R. (1970) The Behaviour of Interest Rates, Basic Books, New York
• Kellison, S. (1971) Theory of Interest, Irwin
• Brigham, E.F. (1983) Fundamentals of Financial Management–Third Edition, Holt Saunders
• Copeland, T.E. and Weston, J.F. (1989) Financial Theory and Corporate Policy, Addison – Wesley
• Knox, D.M. Zima, P. and Brown, R.L. (1984) Mathematics of Finance, McGraw-Hill
• Van Horne, J.C. (1978) Financial Market Rates and Flows, Prentice Hall Inc.
• Van Horne, J.C. (1990) Function and Analysis of Capital Markets, Prentice Hall Inc.

 
ADDITIONAL NOTES Pre-requisite Qualification: Advanced Level in Pure Mathematics

 
STUDY-UNIT TYPE Lecture

 
METHOD OF ASSESSMENT
Assessment Component/s Sept. Asst Session Weighting
Examination (2 Hours) Yes 100%

 
LECTURER/S Liberato Camilleri

 

 
The University makes every effort to ensure that the published Courses Plans, Programmes of Study and Study-Unit information are complete and up-to-date at the time of publication. The University reserves the right to make changes in case errors are detected after publication.
The availability of optional units may be subject to timetabling constraints.
Units not attracting a sufficient number of registrations may be withdrawn without notice.
It should be noted that all the information in the description above applies to study-units available during the academic year 2023/4. It may be subject to change in subsequent years.

https://www.um.edu.mt/course/studyunit