This course is directed at students pursuing advanced studies in finance wishing to gain an understanding of stochastic processes and applications used in continuous time. Topics include: introduction to stochastic calculus; continuous time concepts; martingales; stochastic volatility; applications to asset pricing and derivatives; hedging principles; incomplete markets; transactions costs.

On completion of this course students should understand and be able to apply the processes and applications outlined in the course description.

Take-home midterm exam worth 30% and a Final Examination (worth 70%). FINM7003 students will be required to complete some additional questions  to FINM3003 student on their respective examinations.

At least an average of 65% (or equivalent) in the final two years of an Australian undergraduate degree with at least one year of university level study in quantitative analysis, including basic mathematics and data analysis techniques.

You will be assumed to have knowledge to the level of an introductory treatment of mathematical statistics (e.g. STAT2001) and stochastic modelling (e.g. STAT3004). If you feel uncertain as to your knowledge of these courses, you will need to go back and read the notes/texts for these courses to familiarise yourself with the necessary material as it will not be explicitly covered in this course.

See Course Outline: http://ecocomm.anu.edu.au/courses/outline/FINM3003.pdf