• Class Number 4025
• Term Code 3430
• Class Info
• Unit Value 6 units
• Mode of Delivery In Person
• COURSE CONVENER
• Dr Kevin Lu
• LECTURER
• Dr Kevin Lu
• Class Dates
• Class Start Date 19/02/2024
• Class End Date 24/05/2024
• Census Date 05/04/2024
• Last Date to Enrol 26/02/2024
SELT Survey Results

Continuous Time Finance (FINM6006)

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. Explain stochastic interest rate models and use them to evaluate simple cash flow models.
2. Assess 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

ANU has a rich history of research in the area of stochastic processes relating to derivative pricing. The lecturer and other RSFAS staff members are active researchers in this area, with a keen interest to attract talented students for research projects.

## Examination Material or equipment

The only permitted material for the exams are writing utensils and a handheld calculator (and an unannotated paper-based dictionary).

Lecture notes will be provided. The following prescribed textbook is highly recommended:

• J. Hull. (2022). Options, Futures, and Other Derivatives (Global edition, 11th edition). Pearson.

The following textbooks may be useful as additional references:

• N. Bingham, R. Kiesel. (2004). Risk Neutral Valuation. Springer.
• M. Baxter, A. Rennie. (1996). Financial Calculus. Cambridge University Press.

Digital versions of Hull and Bingham and Kiesel are available from the ANU Library. Physical copies of various editions of Hull, and Baxter and Rennie are also available from the ANU library.

The course content will follow Hull closely. The additional references provide more details about the mathematical theory of derivatives pricing for those interested. There are no required textbooks.

## Staff Feedback

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

• Through returned assessments and the corresponding general feedback the lecturer and tutors may provide to the whole class.
• Through consultation where the lecturer and tutors may provide individualised feedback.

## 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

Communication

If necessary, the lecturer and tutors for this course will contact students on their official ANU student email address. Information about your enrollment and fees from the Registrar and Student Services' office will also be sent to this email address. 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 Misconduct Rule.

Co-Teaching

FINM6006 shares the same lecture content and assessment with FINM3003, except for differences in the assignments. The different cohorts of students will also be treated separately in grading and any moderation or scaling that may be applied.

## Class Schedule

Week/Session Summary of Activities Assessment
1 Review of forwards, futures and options
2 Binomial tree model
3 Discrete time market model
4 Brownian motion, stochastic calculus, geometric Brownian motion Assignment 1 due
5 Continuous time market model, Black-Scholes formula, Black-Scholes PDE
6 European options with dividends, currency options, futures options Mid-semester exam held in Week 6 or Week 7
7 Exotic options
8 The Greeks and hedging
9 Change of numeraire and measure, term structure of interest rates
10 Stochastic interest rate models and bond pricing Assignment 2 due
11 Interest rate derivatives
12 Further interest rate models, revision

## Tutorial Registration

ANU utilises MyTimetable to enable students to view the timetable for their enrolled courses, browse, then self-allocate to tutorials so they can better plan their time. Find out more on the Timetable webpage.

## Assessment Summary

Assessment task Value Due Date Return of assessment Learning Outcomes
Assignment 1 5 % 15/03/2024 28/03/2024 2, 3
Mid-semester Exam 20 % 25/03/2024 03/05/2024 2, 3
Assignment 2 5 % 10/05/2024 24/05/2024 2, 3
Final Exam 70 % 30/05/2024 27/06/2024 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:

## 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 lectures (recorded and available via Echo360 on Wattle), and weekly on-campus tutorials (not recorded). Weekly consultations with the lecturer and the tutors can be attended in-person or over Zoom.

## Examination(s)

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

Value: 5 %
Due Date: 15/03/2024
Return of Assessment: 28/03/2024
Learning Outcomes: 2, 3

Assignment 1

Assignments will be submitted using Wattle. The assignment is to be completed individually. Assignment questions will be released 2 weeks before the due date. Assignment 1 is due on Friday Week 4 at 23:59.

Value: 20 %
Due Date: 25/03/2024
Return of Assessment: 03/05/2024
Learning Outcomes: 2, 3

Mid-semester Exam

The mid-semester exam will be in-person and closed-book with 1.5 hours writing time. The mid-semester exam is redeemable, which means its weight will be transferred to the final exam if that produces a higher grade. Further information will be provided by Week 4. The exam will be centrally scheduled to occur in either Week 6 or 7 with the scheduling details to be made available on the ANU Timetabling website.

Value: 5 %
Due Date: 10/05/2024
Return of Assessment: 24/05/2024
Learning Outcomes: 2, 3

Assignment 2

Assignments will be submitted using Wattle. The assignment is to be completed individually. Assignment questions will be released 2 weeks before the due date. Assignment 2 is due on Friday Week 10 at 23:59.

Value: 70 %
Due Date: 30/05/2024
Return of Assessment: 27/06/2024
Learning Outcomes: 1, 2, 3

Final Exam

The final exam will be in-person and closed-book with 3 hours writing time. Further information will be provided by Week 11. The exam will be centrally scheduled with the scheduling details to be made available on the ANU Timetabling website.

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

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. Submission will be on Wattle, and will not use Turnitin.

## Hardcopy Submission

There are no hardcopy submissions in the course.

## Late Submission

No late submission of assessment tasks will be permitted. If an assessment task is not submitted by the due date and time, 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

Assignments will be graded and returned on Wattle.

## 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

No resubmission of assignments is 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.
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.

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).

## Convener

 Dr Kevin Lu U5119413@anu.edu.au

### Research Interests

Stochastic processes, probability theory, mathematical finance

### Dr Kevin Lu

 Thursday 15:00 16:00 Thursday 15:00 16:00 By Appointment

## Instructor

 Dr Kevin Lu kevin.lu@anu.edu.au

### Dr Kevin Lu

 Thursday 15:00 16:00 Thursday 15:00 16:00 By Appointment