This is an advanced course in derivatives pricing and hedging, and their applications. The aim is to cover advanced topics in the Black-Scholes model such as optimal stopping theory for pricing and hedging American options, change of numeraire methods, derivatives dependent on one or more Brownian motions, pricing options on correlated assets and various exotic options. In addition, the course also covers alternatives to the Black-Scholes model such as local volatility, jump diffusion and GARCH models, and concepts from risk management such as credit risk. Some time will be spent on the mathematical foundations necessary for understanding these and other applications.
Learning Outcomes
Upon successful completion, students will have the knowledge and skills to:
- Demonstrate an understanding of optimal stopping theory and its applications to American options.
- Understand the arbitrage-free approach to option pricing and its mathematical foundation.
- Apply tools from probability and stochastic processes to price options on correlated assets, various exotic options, and demonstrate an understanding of how these options are used in financial practice.
- Understand alternatives to the Black-Scholes model such as local volatility, jump diffusion and GARCH models, and how to apply appropriate models and numerical methods.
Indicative Assessment
- Typical assessment may include, but is not restricted to: exams, assignments, quizzes, presentations, and other assessment as appropriate. (100) [LO 1,2,3,4]
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Workload
Students are expected to commit 130 hours of work in completing this course. This includes time spent in scheduled classes and self-directed study time.
Requisite and Incompatibility
Prescribed Texts
Refer to the class summary.
Preliminary Reading
Refer to the class summary.
Fees
Tuition fees are for the academic year indicated at the top of the page.
Commonwealth Support (CSP) Students
If you have been offered a Commonwealth supported place, your fees are set by the Australian Government for each course. At ANU 1 EFTSL is 48 units (normally 8 x 6-unit courses). More information about your student contribution amount for each course at Fees.
- Student Contribution Band:
- 34
- Unit value:
- 6 units
If you are a domestic graduate coursework student with a Domestic Tuition Fee (DTF) place or international student you will be required to pay course tuition fees (see below). Course tuition fees are indexed annually. Further information for domestic and international students about tuition and other fees can be found at Fees.
Where there is a unit range displayed for this course, not all unit options below may be available.
| Units | EFTSL |
|---|---|
| 6.00 | 0.12500 |
Offerings, Dates and Class Summary Links
ANU utilises MyTimetable to enable students to view the timetable for their enrolled courses, browse, then self-allocate to small teaching activities / tutorials so they can better plan their time. Find out more on the Timetable webpage.
Class summaries, if available, can be accessed by clicking on the View link for the relevant class number.
Second Semester
| Class number | Class start date | Last day to enrol | Census date | Class end date | Mode Of Delivery | Class Summary |
|---|---|---|---|---|---|---|
| 8200 | 21 Jul 2025 | 28 Jul 2025 | 31 Aug 2025 | 24 Oct 2025 | In Person | N/A |
