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 the basics of stochastic interest rate models and use them to evaluate simple cash flow models.
2. Define the arbitrage-free approach to pricing.
3. Utilise the mathematical tools required for pricing derivatives 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.

Examination Material or equipment

Examination material and condition will be notified to all students via wattle by week 10 and the examinations office.

Required Resources

All basic course materials will be available on Wattle.

Prescribed text:

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

The ebook is available at: https://library.anu.edu.au/record=b5640020

Recommended Resources

Additional references:

• Shreve, Stochastic Calculus for Finance I: The Binomial Asset Pricing Model
• Baxter and Rennie, Financial Calculus

Staff Feedback

Students will be given feedback (through both verbal and written comments) in the following forms in this course:

• To the whole class during lectures.
• Within tutorials.
• Individually during consultation hours.

Students will also be given online quiz feedback on Wattle and written comments in the marked assignments.

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). Feedback can also be provided to Course Conveners and teachers via the Student Experience of Learning & Teaching (SELT) feedback program. SELT surveys are confidential and also provide the Colleges and ANU Executive with opportunities to recognise excellent teaching, and opportunities for improvement.

Other Information

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/

Communication via Email

If I, or anyone in the School, College or University administration, need to contact you, we will do so via your official ANU student email address, which you need to check regularly. If

you have any questions for the teaching and course convenor make sure you email them using your ANU email address. Emails from personal email accounts will not be answered.

Announcements

Students are expected to check the Wattle site for announcements about this course, e.g. changes to timetables or notifications of cancellations.

Assessment Requirements

As a further academic integrity control, students may be selected for a 15 minute individual oral examination of their written assessment submissions.

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 Integrity 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.

Referencing Requirements

In assignments and exams, students must appropriately reference any results, words or ideas that they take from another source which is not their own. A guide can be found

at https://academicskills.anu.edu.au/resources/handouts/referencing-basics.

Co-Teaching

FINM3003 shares the same lecture content and assignments with FINM6006, however these cohorts may have separate tutorials and different assessments. The different cohorts of students will also be treated separately in grading and any scaling that is applied.

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, Release of Assignment 1 via Wattle
5	Continuous Time Market Theory. The Black- Scholes formula.
6	Exotic Options: Binaries, Lookbacks. Matching the Tree.	Submission of Assignment 1 via Wattle
7	The Greeks and Hedging Strategies.
8	Intrinsic and Time Values. Implied Volatility. Simulation.	Release of Assignment 2 via Wattle
9	Dividends, Currencies, Futures Options.
10	Stochastic Interest Rate Models and Term Structure of Interest Rates.	Submission of Assignment 2 via Wattle
11	Interest Rate Derivatives.	Online Quiz 2
12	Interest Rate Derivatives and Revision.	There will be a final exam during the university examination period. More information and instructions regarding the exam will be provided no later than week 10 on Wattle.

Tutorial Registration

Tutorials will be held weekly (starting from week 2). Tutorials will be available on campus, live through scheduled Zoom sessions and as pre-recorded videos. Students should enrol in their tutorial using MyTimetable.

Assessment Summary

Assessment task	Value	Due Date	Return of assessment	Learning Outcomes
Online Quizzes	5 %	19/03/2023	22/05/2023	1, 2, 3
Assignment 1	15 %	31/03/2023	21/04/2023	2, 3
Assignment 2	15 %	12/05/2023	26/05/2023	2, 3
Final Exam	65 %	01/06/2023	29/06/2023	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 Integrity Rule before the commencement of their course. Other key policies and guidelines include:

• Academic Integrity Policy and Procedure
• Student Assessment (Coursework) Policy and Procedure
• Special Assessment Consideration Guideline and General Information 
• Student Surveys and Evaluations
• Deferred Examinations
• Student Complaint Resolution Policy and Procedure
• Code of practice for teaching and learning

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 Academic Skills 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.

Participation

Course content delivery will take the form of weekly on-campus live/echo recorded lectures and workshops and weekly tutorials, delivered in hybrid format (on campus, live through scheduled Zoom sessions and as pre-recorded videos). The consultations are all on-line live through zoom. On-Campus consultations are available via appointment.

Attendance at lectures and tutorials, while not compulsory, is expected in line with “Code of Practice for Teaching and Learning”, clause 2 paragraph (b).

Examination(s)

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. Centrally scheduled examinations through Examinations, Graduations & Prizes will be timetabled prior to the examination period. Please check ANU Timetabling for further

information. Details of examinations are provided in the relevant Assessment Task section.

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 2023-03-19 and 2023-05-21 and will be made available one week before this. Each student gets one attempt and no practise quizzes are available. The two quizzes together will count towards 5% of the final mark with each quiz contributing 2.5% towards the final grade. Students will receive feedback upon close of quiz.

Assessment Task 2

Assignment 1

Assignment 1 will count towards 15% 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. Feedback will be provided in the form of individual marks through Turnitin Grademark along with complete solutions provided to all students.

Assessment Task 3

Assignment 2

Assignment 2 will count towards 15% 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. Feedback will be provided in the form of individual marks through Turnitin Grademark along with complete solutions provided to all students.

Assessment Task 4

Final Exam

The Final Exam is compulsory and will count towards 65% of the overall final mark. Further details relating to the Exam will be provided closer to the scheduled date and no later than week 10. The exam will be a wattle based online exam (submission via Turnitin) and student can submit either typed or handwritten and scanned answers. The final examination will be 3-4 hours long and cover the entire syllabus. Exams may contain a combination of MCQ, short answer and essay type questions. It will be open book and all materials are permitted. This exam will not be actively invigilated via Proctorio or Zoom.

June 1st is the earliest date the exam can be held. The exam will be centrally timetabled and details of the final examination timetable will be made available on the ANU

Timetabling website.

Academic Integrity

Academic integrity is a core part of the ANU culture as a community of scholars. The University’s students are an integral part of that community. The academic integrity principle commits all students to engage in academic work in ways that are consistent with, and actively support, academic integrity, and to uphold this commitment by behaving honestly, responsibly and ethically, and with respect and fairness, in scholarly practice.

The University expects all staff and students to be familiar with the academic integrity principle, the Academic Integrity Rule 2021, the Policy: Student Academic Integrity and Procedure: Student Academic Integrity, and to uphold high standards of academic integrity to ensure the quality and value of our qualifications.

The Academic Integrity Rule 2021 is a legal document that the University uses to promote academic integrity, and manage breaches of the academic integrity principle. The Policy and Procedure support the Rule by outlining overarching principles, responsibilities and processes. The Academic Integrity Rule 2021 commences on 1 December 2021 and applies to courses commencing on or after that date, as well as to research conduct occurring on or after that date. Prior to this, the Academic Misconduct Rule 2015 applies.

 

The University commits to assisting all students to understand how to engage in academic work in ways that are consistent with, and actively support academic integrity. All coursework students must complete the online Academic Integrity Module (Epigeum), and Higher Degree Research (HDR) students are required to complete research integrity training. The Academic Integrity website provides information about services available to assist students with their assignments, examinations and other learning activities, as well as understanding and upholding academic integrity.

Online Submission

Students will be required to electronically sign a declaration as part of the submission of each assessment item. Failure to do so may result in a grade of 0 for the assessment item. Please keep a copy of the assessment for your records. Unless an exemption has been approved by the Associate Dean (Education) as submission must be through Turnitin.

Details on how to submit handwritten assignments will be provided on Wattle.

Hardcopy Submission

There is no hardcopy submission in the course.

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

The Academic Skills website has information to assist you with your writing and assessments. The website includes information about Academic Integrity including referencing requirements for different disciplines. There is also information on Plagiarism and different ways to use source material.

Returning Assignments

The two assignments will be returned to students 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

It will not be possible for assignments to be resubmitted.

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 Access 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