Continuous Time Finance provides an introduction to the theory and practice of derivative pricing and hedging. The aim of this course is to provide students with the mathematical skills needed for the valuation of derivatives. Focus will be on the application of results rather than their mathematical derivation. These tools will be applied to derive the famous Black-Scholes formula, to price options on currencies and interest-rate derivatives.

Learning Outcomes

Upon successful completion, students will have the knowledge and skills to:

1. Communicate stochastic interest rate models and use them to evaluate simple cash flow models.
2. Explain in detail the arbitrage-free approach to pricing.
3. Utilise the mathematical tools required for pricing derivatives and other financial measures in this framework, such as Ito’s formula, martingales, stochastic differential equations, change of measure, and the martingale representation theorem.

Research-Led Teaching

The course provides the up-to-date introduction to the derivatives pricing and hedging. The course convener has undertaken research in areas of actuarial sciences and quantitative finance. Lectures in the course will be informed where possible by practical examples.

Additional Course Costs

None.

Examination Material or equipment

Details about the material or equipment that is permitted in an examination room will be provided in class and on Wattle.

Required Resources

All basic course materials will be available on Wattle. Students will be required to print these out themselves if they want a hard copy of them.

Prescribed Text

• John Hull, Options Futures and Other Derivatives: Global Edition, 8e or 9e.

Students are expected to have access to a copy of the prescribed book for the duration of the semester. The book can be purchased from the on-campus bookshop, with a small number of copies also available for 2-hour loan in the reserve loan section of the Chifley Library.

Recommended Resources

Additional references:

• Shreve, Stochastic Calculus for Finance I: The Binomial Asset Pricing Model

• Baxter and Rennie, Financial Calculus

Copies of the above books are available for 2-hour loan in the reserve loan section of the Chifley Library.

Staff Feedback

Students will be given feedback in the following forms in this course:

• Written comments,
• Verbal comments.

Student Feedback

ANU is committed to the demonstration of educational excellence and regularly seeks feedback from students. Students are encouraged to offer feedback directly to their Course Convener or through their College and Course representatives (if applicable). The feedback given in these surveys is anonymous and provides the Colleges, University Education Committee and Academic Board with opportunities to recognise excellent teaching, and opportunities for improvement. The Surveys and Evaluation website provides more information on student surveys at ANU and reports on the feedback provided on ANU courses.

Other Information

Assessment Requirements

Any student identified, either during the current semester or in retrospect, as having used ghost writing services will be investigated under the University’s Academic Misconduct Rule.

Scaling

Your final mark for the course will be based on the raw marks allocated for each of your assessment items. However, your final mark may not be the same number as produced by that formula, as marks may be scaled. Any scaling applied will preserve the rank order of raw marks (i.e. if your raw mark exceeds that of another student, then your scaled mark will exceed the scaled mark of that student), and may be either up or down

Support for Students

The University offers a number of support services for students. Information on these is available online from http://students.anu.edu.au/studentlife/

Class Schedule

Week/Session	Summary of Activities	Assessment
1	Overview of the course. Revision of Fwd/Futures Pricing & Valuation, basic probability concepts
2	Options: Put-Call Parity, Option Price Bounds, Binomial Models
3	Arbitrage-Free and Complete Markets. Risk- Neutral Pricing
4	Brownian Motion. Stochastic Calculus. Geometric Brownian Motion	Online Quiz 1, Assignment 1 (out)
5	Continuous Time Market Theory. The Black- Scholes formula
6	Exotic Options: Binaries, Lookbacks. Matching the Tree.	Assignment 1 (due)
7	The Greeks and Hedging Strategies	Assignment 1 (feedback)
8	Intrinsic and Time Values. Implied Volatility. Simulation	Assignment 2 (out)
9	Dividends, Currencies, Futures Options
10	Stochastic Interest Rate Models and Term Structure of Interest Rates	Assignment 2 (due)
11	Interest Rate Derivatives	Online Quiz 2
12	Interest Rate Derivatives and Revision	Assignment 2 (feedback)
13	Examination Period	Final Exam

Tutorial Registration

Tutorial signup for this course will be done via the Wattle website. Detailed information about signup times will be provided on Wattle or during your first lecture. When tutorials are available for enrolment, follow these steps:

1.   Log on to Wattle, and go to the course site

2.   Click on the link “Tutorial enrolment”

3.   On the right of the screen, click on the tab “Become Member of…..” for the tutorial class you wish to enter

4.   Confirm your choice

If you need to change your enrolment, you will be able to do so by clicking on the tab “Leave group….” and then re-enrol in another group. You will not be able to enrol in groups that have reached their maximum number. Please note that enrolment in ISIS must be finalised for you to have access to Wattle.

Assessment Summary

Assessment task	Value	Due Date	Return of assessment	Learning Outcomes
Online Quizzes	5 %	23/03/2020	29/05/2020	1, 2, 3
Assignment 1	10 %	03/04/2020	24/04/2020	2, 3
Assignment 2	10 %	15/05/2020	29/05/2020	2, 3
Final Exam	75 %	20/06/2020	02/07/2020	1, 2, 3

* If the Due Date and Return of Assessment date are blank, see the Assessment Tab for specific Assessment Task details

Policies

ANU has educational policies, procedures and guidelines, which are designed to ensure that staff and students are aware of the University’s academic standards, and implement them. Students are expected to have read the Academic Misconduct Rule before the commencement of their course. Other key policies and guidelines include:

• Student Assessment (Coursework) Policy and Procedure
• Special Assessment Consideration Policy and General Information 
• Student Surveys and Evaluations
• Deferred Examinations
• Student Complaint Resolution Policy and Procedure

Assessment Requirements

The ANU is using Turnitin to enhance student citation and referencing techniques, and to assess assignment submissions as a component of the University's approach to managing Academic Integrity. For additional information regarding Turnitin please visit the ANU Online website. In rare cases where online submission using Turnitin software is not technically possible; or where not using Turnitin software has been justified by the Course Convener and approved by the Associate Dean (Education) on the basis of the teaching model being employed; students shall submit assessment online via ‘Wattle’ outside of Turnitin, or failing that in hard copy, or through a combination of submission methods as approved by the Associate Dean (Education). The submission method is detailed below.

Moderation of Assessment

Marks that are allocated during Semester are to be considered provisional until formalised by the College examiners meeting at the end of each Semester. If appropriate, some moderation of marks might be applied prior to final results being released.

Examination(s)

The course has a final examination. This is centrally timetabled. Further details relating to the Exam will be provided on Wattle and in class closer to the scheduled date.

Assessment Task 1

Online Quizzes

Two online quizzes published on Wattle are to be released in Week 4 and Week 11. Students will be given 1 hour to complete each quiz. The due dates are 2019-03-23 and 2019-05-29 and will be made available one week before this. The two quizzes together will count towards 5% of the final mark. Students will receive feedback immediately after they submitted their answers. This assessment task is redeemable.

Assessment Task 2

Assignment 1

Assignment 1 will count towards 10% of the overall final mark. The assignment questions will be provided to all students at the relevant time (no later than week 4) on the course Wattle page. Students are expected to complete this assignment individually. This assessment task is redeemable.

Assessment Task 3

Assignment 2

Assignment 2 will count towards 10% of the overall final mark. The assignment questions will be provided to all students at the relevant time (no later than week 8) on the course Wattle page. Students are expected to complete this assignment individually. This assessment task is redeemable.

Assessment Task 4

Final Exam

The final exam will count towards s 75% or 80% or 85% or 90% or 95% or 100% of the overall final mark, depending on students' performance in the other assessment tasks. Centrally administered examinations through Examinations, Graduations & Prizes will be timetabled prior to the examination period. Please check ANU Timetabling for further information. Further information about the examination will be provided in class and on Wattle closer to the time of the examination.

Academic Integrity

Academic integrity is a core part of the ANU culture as a community of scholars. At its heart, academic integrity is about behaving ethically, committing to honest and responsible scholarly practice and upholding these values with respect and fairness.

The ANU commits to assisting all members of our community to understand how to engage in academic work in ways that are consistent with, and actively support academic integrity. The ANU expects staff and students to be familiar with the academic integrity principle and Academic Misconduct Rule, uphold high standards of academic integrity and act ethically and honestly, to ensure the quality and value of the qualification that you will graduate with.

The Academic Misconduct Rule is in place to promote academic integrity and manage academic misconduct. Very minor breaches of the academic integrity principle may result in a reduction of marks of up to 10% of the total marks available for the assessment. The ANU offers a number of online and in person services to assist students with their assignments, examinations, and other learning activities. Visit the Academic Skills website for more information about academic integrity, your responsibilities and for assistance with your assignments, writing skills and study.

Online Submission

You will be required to electronically sign a declaration as part of the submission of your assignment. Please keep a copy of the assignment for your records. Unless an exemption has been approved by the Associate Dean (Education) as submission must be through Turnitin. 

Hardcopy Submission

NA.

Late Submission

No submission of assessment tasks without an extension after the due date will be permitted. If an assessment task is not submitted by the due date, a mark of 0 will be awarded.

Referencing Requirements

Accepted academic practice for referencing sources that you use in presentations can be found via the links on the Wattle site, under the file named “ANU and College Policies, Program Information, Student Support Services and Assessment”. Alternatively, you can seek help through the Students Learning Development website.

Returning Assignments

Assignment 1 and Assignment 2 will be returned with feedback in Week 7 and Week 12 respectively through Turnitin.

 

Extensions and Penalties

Extensions and late submission of assessment pieces are covered by the Student Assessment (Coursework) Policy and Procedure. Extensions may be granted for assessment pieces that are not examinations or take-home examinations. If you need an extension, you must request an extension in writing on or before the due date. If you have documented and appropriate medical evidence that demonstrates you were not able to request an extension on or before the due date, you may be able to request it after the due date.

Resubmission of Assignments

Is not permitted.

Privacy Notice

The ANU has made a number of third party, online, databases available for students to use. Use of each online database is conditional on student end users first agreeing to the database licensor’s terms of service and/or privacy policy. Students should read these carefully. In some cases student end users will be required to register an account with the database licensor and submit personal information, including their: first name; last name; ANU email address; and other information.
In cases where student end users are asked to submit ‘content’ to a database, such as an assignment or short answers, the database licensor may only use the student’s ‘content’ in accordance with the terms of service – including any (copyright) licence the student grants to the database licensor. Any personal information or content a student submits may be stored by the licensor, potentially offshore, and will be used to process the database service in accordance with the licensors terms of service and/or privacy policy.
If any student chooses not to agree to the database licensor’s terms of service or privacy policy, the student will not be able to access and use the database. In these circumstances students should contact their lecturer to enquire about alternative arrangements that are available.

Distribution of grades policy

Academic Quality Assurance Committee monitors the performance of students, including attrition, further study and employment rates and grade distribution, and College reports on quality assurance processes for assessment activities, including alignment with national and international disciplinary and interdisciplinary standards, as well as qualification type learning outcomes.

Since first semester 1994, ANU uses a grading scale for all courses. This grading scale is used by all academic areas of the University.

Support for students

The University offers students support through several different services. You may contact the services listed below directly or seek advice from your Course Convener, Student Administrators, or your College and Course representatives (if applicable).

• ANU Health, safety & wellbeing for medical services, counselling, mental health and spiritual support
• ANU Diversity and inclusion for students with a disability or ongoing or chronic illness
• ANU Dean of Students for confidential, impartial advice and help to resolve problems between students and the academic or administrative areas of the University
• ANU Academic Skills and Learning Centre supports you make your own decisions about how you learn and manage your workload.
• ANU Counselling Centre promotes, supports and enhances mental health and wellbeing within the University student community.
• ANUSA supports and represents undergraduate and ANU College students
• PARSA supports and represents postgraduate and research students