F71AB - Financial Mathematics Fundamentals

Course leader(s):

Brian Moretta (Edinburgh, September)

Aims

This module provides a grounding in the principles of financial mathematics, focusing on deterministic models and their application to financial products.

Syllabus

1. Study the theory of interest (1.1 To include time value of money, compounding, interest rate calculations, force of interest, the principle of equivalence and the calculation of annuities certain.)

2. Application of financial mathematics to actuarial and business problems, including understanding of selected financial products (2.1 To include loan schedules, fixed income and index-linked securities, project appraisal, tax and immunisation.)

3. Study theories of financial markets at an introductory level (3.1 To include rational expectations theory, arbitrage and forward contracts.)

Learning outcomes

By the end of the course, students should be able to do the following:

evaluate and analyse financial projects using summary measures of their future cashflows.
apply discounting techniques to value fixed interest securities allowing for tax, and analyse the impact of changes in economic conditions on their prices and yields.
understand and analyse inflation-adjusted cashflows, including the valuation of inflation-linked securities, and be able to evaluate the financial attractiveness of inflation-adjusted cashflows.
understand and apply fundamental techniques of financial mathematics, primarily to deterministic cashflows. These include the theory of interest rates, equations of value and their applications.
understand, apply and analyse the effectiveness of the application of Redington's theory of immunisation.
understand and apply the no-arbitrage assumption to value financial contracts.

Further details

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SCQF Level: 11

Credits: 15