FITE7405A - Techniques in computational finance

Semester 2, 2022-23

Professor	J.R. Zhang
Teaching assistant	Qianru Zhang
Syllabus	This course introduces the major computation problems in the field of financial derivatives and various computational methods/techniques for solving these problems.  The lectures start with a short introduction on various financial derivative products, and then move to the derivation of the mathematical models employed in the valuation of these products, and finally come to the solving techniques for the models.
Introduction by Professor	The financial industry heavily depends on advanced computing technologies and mathematical modeling techniques, and is a major employer of computer science graduates in Hong Kong.  In this course, we will present the primary techniques in computational finance.  In particular, we will focus on how to systematically valuate a financial option and manage its risks.  We will also discuss various practical issues when dealing with options in practice. You are able to get first-hand experiences from a practitioner.
Learning Outcomes	Course Learning Outcomes Relevant Programme Learning Outcome CLO1. Able to identify and analyze the computation problems in computational finance PLO.5, 6, 7, 8, 9, 10, 11, 12, 16 CLO2. Able to apply various computational techniques with computer algorithms to solve the computation problems PLO.4, 5, 6, 7, 8, 9, 14, 15, 16 CLO3. Able to tackle challenging tasks with team efforts PLO.3 View Programme Learning Outcomes
Pre-requisites	No prior finance knowledge is required. Students are assumed to have basic competence in calculus and probability (up to the level of knowing the concepts of random variables, normal distributions, etc.).  Knowledge in at least one programming language is required for the assignments/final project.
Compatibility	Students who have taken "COMP7405 Techniques in computational finance" should not be allowed to take FITE7405.
Topics covered	Course Content No. of Hours Course Learning Outcomes 1. Introduction to financial markets; various of financial derivative products; the idea of pricing an option; the "no arbitrage" principle; some basic inequalities involving option values using no arbitrage 6 CLO1 2. Option Asset price model. Lognormal model; Brownian motion 6 CLO1 3. Computational Methods. Monte-Carlo simulation for option pricing; calculation of Greeks; variance reduction techniques in Monte-Carlo simulation; Binomial Tree Method; Partial Differential Equations 9 CLO1, CLO2 4 Implied volatility, historical volatility, hedging in practice 6 CLO2, CLO3 5. Exotic options and structured products 3 CLO2
Assessment	Description Type Weighting * Examination Period ^ Course Learning Outcomes Written assignment 1 Continuous Assessment 5% - CLO1 Written/programming assignment 2 Continuous Assessment 15% - CLO1, CLO2 Programming assignment 3 Continuous Assessment 20% - CLO2, CLO3 Final Examination Written Examination 60% 8 - 23 May 2023 CLO1, CLO2 * The weighting of coursework and examination marks is subject to approval ^ The exact examination date uses to be released when all enrolments are confirmed after add/drop period by the Examinations Office.  Students are obliged to follow the examination schedule.  Students should NOT enrol in the course if they are not certain that they will be in Hong Kong during the examination period.  Absent from examination may result in failure in the course. There is no supplementary examination for all MSc curriculums in the Faculty of Engineering. For reference: A sample assignment
Course materials	Prescribed textbook: An introduction to financial option valuation by Desmond J. Higham Recommended readings: Options, Futures, and other derivatives by John C. Hull
Session dates	Date Time Venue Remark Session 1 20 Jan 2023 (Fri) 7:00pm - 10:00pm CYP-P2 Face-to-face Session 2 3 Feb 2023 (Fri) 7:00pm - 10:00pm CYP-P2 Face-to-face Session 3 10 Feb 2023 (Fri) 7:00pm - 10:00pm CYP-P2 Face-to-face Session 4 17 Feb 2023 (Fri) 7:00pm - 10:00pm CYP-P2 Face-to-face Session 5 24 Feb 2023 (Fri) 7:00pm - 10:00pm CYP-P2 Face-to-face Session 6 3 Mar 2023 (Fri) 7:00pm - 10:00pm CYP-P2 Face-to-face Session 7 17 Mar 2023 (Fri) 7:00pm - 10:00pm CYP-P2 Face-to-face Session 8 24 Mar 2023 (Fri) 7:00pm - 10:00pm CYP-P2 Face-to-face Session 9 31 Mar 2023 (Fri) 7:00pm - 10:00pm CYP-P2 Face-to-face Session 10 14 Apr 2023 (Fri) 7:00pm - 10:00pm CYP-P2 Face-to-face CYP - Chong Yuet Ming Building
Add/drop	16 January, 2023 - 4 February, 2023
Maximum class size	150