ICM299-Numerical Methods for Financial Engineering

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Level:7
Terms in which taught: Spring term module
Pre-requisites:
Non-modular pre-requisites:
Co-requisites:
Modules excluded:
Current from: 2022/3

Module Convenor: Dr Peter Sweby
Email: p.k.sweby@reading.ac.uk

Type of module:

Summary module description:

This module is delivered at University of Reading

This module introduces the major numerical methods required for quantitative work in finance, with a particular emphasis on the tools required for the implementation of the major derivative pricing models.

Aims:

This module aims to introduce the major numerical methods required for quantitative work in finance, with a particular emphasis on the tools required for the implementation of the major derivative pricing models, including an introduction to coding in VBA.

Assessable learning outcomes:

By the end of the module, it is expected that students will be able to:

• Understand the basic concepts of numerical approximation


• Solve linear and nonlinear systems of equations


• Implement optimization and calibration methods


• Implement interpolation methods


• Build high standard computer programmes for derivative pricing models using
  
  o  Tree-based methods
  
  o  Monte C arlo simulation
  
  o  Finite Difference methods

Additional outcomes:

Students will learn the fundamental techniques that will enable them to pursue further research in computational finance.

Outline content:
£ Foundations of Numerical Computations
£ Numerical solution of Systems of Linear and Nonlinear Equations
£ Numerical Optimization techniques
£ Calibration methods
£ Interpolation methods
£ Simulation of Stochastic Differential Equations
£ Pricing of financial derivatives Monte Carlo simulations
£ Pricing of financial derivatives with Binomial and Trinomial Trees
£ Pricing of financial derivatives Finite Difference methods

Brief description of teaching and learning methods:
Teaching is via lectures enhanced with practical exercises, with reference to recommended textbooks and journal articles.

Contact hours:

	Autumn	Spring	Summer
Lectures		18	2
Practicals classes and workshops		10
Guided independent study:
Wider reading (independent)		20
Exam revision/preparation		20	10
Advance preparation for classes		9	1
Other		80
Completion of formative assessment tasks		10
Reflection		20
Total hours by term	0	187	13
Total hours for module	200

Summative Assessment Methods:

Method	Percentage
Written exam	50
Written assignment including essay	50

Summative assessment- Examinations:
2 hours closed book written examination

Summative assessment- Coursework and in-class tests:

The written assignment is an individual project set week 2 of Spring Term, due end of week 1 of Summer term.

Formative assessment methods:

Penalties for late submission:

The below information applies to students on taught programmes except those on Postgraduate Flexible programmes. Penalties for late submission, and the associated procedures, which apply to Postgraduate Flexible programmes are specified in the policy £Penalties for late submission for Postgraduate Flexible programmes£, which can be found here: http://www.reading.ac.uk/web/files/qualitysupport/penaltiesforlatesubmissionPGflexible.pdf
The Support Centres will apply the following penalties for work submitted late:

• where the piece of work is submitted after the original deadline (or any formally agreed extension to the deadline): 10% of the total marks available for that piece of work will be deducted from the mark for each working day (or part thereof) following the deadline up to a total of five working days;
• where the piece of work is submitted more than five working days after the original deadline (or any formally agreed extension to the deadline): a mark of zero will be recorded.

The University policy statement on penalties for late submission can be found at: http://www.reading.ac.uk/web/FILES/qualitysupport/penaltiesforlatesubmission.pdf
You are strongly advised to ensure that coursework is submitted by the relevant deadline. You should note that it is advisable to submit work in an unfinished state rather than to fail to submit any work.

Assessment requirements for a pass:
50% weighted average mark

Reassessment arrangements:

By written examination only, to be taken in August/September, as part of the overall examination arrangements for the MSc programme

Additional Costs (specified where applicable):

1) Suggested textbook: Manfred Gilli, Dietmar Maringer and Enrico Schumann: Numerical Methods and Optimization in Finance Academic Press, 2011, ISBN-10: 0123756626, £63.99. 2) Specialist equipment or materials: 3) Specialist clothing, footwear or headgear: 4) Printing and binding: 5) Computers and devices with a particular specification: 6) Travel, accommodation and subsistence:

Last updated: 29 March 2022