The course introduces stochastic processes with a view towards applications in fields such as finance, insurance, risk management, and operations research.

The aim is to provide mathematics students with basic knowledge of stochastic processes where practical rather than theoretical aspects are emphasized.

Probability Modelling and Applications provides a sound foundation to post-graduate courses emphasizing the theory of mathematical finance and stochastic analysis.

The course contains:

• Markov chains
• Poisson processes
• Brownian motion
• Conceptual formulation of topics in continuous time finance, insurance and risk management, where these processes are applied.
• Concept of martingales, which is fundamental for understanding the modern option pricing theory of Black and Scholes.

Note: Graduate students attend joint classes with undergraduates but will be assessed separately.

On satisfying the requirements of this course, students will have the knowledge and skills to:

Assessment will be based on:

• 3 Assignments (worth 10% each; LO 1-4)
• Final examination (70%; LO 1-4)