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Financial Data Analysis Course Overview

The Financial Data Analysis course aims to provide students with a mathematical foundation for analyzing financial systems and tools for quantitative finance, covering topics such as stochastic processes, option pricing models, and portfolio optimization. The syllabus includes various units on financial mathematics, option pricing theories, stochastic calculus, and Monte Carlo simulation techniques. Upon completion, students will be able to apply stochastic concepts, analyze financial derivatives, solve portfolio optimization problems, and implement Monte Carlo simulations.

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11 views2 pages

Financial Data Analysis Course Overview

The Financial Data Analysis course aims to provide students with a mathematical foundation for analyzing financial systems and tools for quantitative finance, covering topics such as stochastic processes, option pricing models, and portfolio optimization. The syllabus includes various units on financial mathematics, option pricing theories, stochastic calculus, and Monte Carlo simulation techniques. Upon completion, students will be able to apply stochastic concepts, analyze financial derivatives, solve portfolio optimization problems, and implement Monte Carlo simulations.

Uploaded by

Leela mutyala
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Financial Data Analysis

Program Elective
L-T-P-C: 2-1-0-3

Course Objectives
The main objective of this course is to provide students with a mathematical foundation for
analyzing financial systems and to equip them with the necessary tools to study financial markets
and pursue careers in the rapidly evolving field of quantitative finance. It introduces stochastic
processes, option pricing models, and portfolio optimization theory, along with numerical
methods such as Monte Carlo simulation.

Syllabus

Unit 1: Overview of financial mathematics: basic definitions and terminology, Random variables
and stochastic processes, Classification of stochastic processes and their applications.

Unit 2: Basic theory of option pricing, Single and multi-period binomial pricing models,
Cox-Ross-Rubinstein (CRR) model and its properties.

Unit 3: Derivation of the Black–Scholes option pricing model as the limit of the CRR model,
Assumptions and limitations of the Black–Scholes model, Extensions and applications of the
model to financial derivatives

Unit 4: Stochastic processes useful in finance mathematics: Brownian and Geometric Brownian
motions, Theory of martingale and their significance in finance, Stochastic Calculus, Ito's
formula and SDEs, Applications of Stochastic Calculus in Option Pricing.

Unit 5: Mean-variance portfolio theory and Markowitz model of portfolio optimization, Capital
asset pricing model (CAPM). Limitations of Markowitz model and modern measures of financial
risk, Interest rates and Interest rate derivatives.

Unit 6: Random number generation and pseudo-random sequences, Monte Carlo (MC)
simulation for financial applications, Variance reduction techniques in MC simulation,
Numerical solution of SDEs using MC methods and implementation issues, Case studies in
Python or MATLAB

​
Course Outcomes

After successful completion of this course, students will be able to:

1.​ Apply fundamental concepts of stochastic processes and stochastic calculus to model
random behavior in financial systems.
2.​ Analyze and compute the prices of financial derivatives using pricing models.
3.​ Formulate and solve portfolio optimization problems using Markowitz models.
4.​ Implement and interpret Monte Carlo simulation techniques for solving SDEs and
evaluating financial instruments.

Text Books

●​ S. E. Shreve, Stochastic Calculus for Finance, Vol. I & Vol. II, Springer (2004).
●​ M. Capinski and T. Zastawniak, Mathematics for Finance: An Introduction to Financial
Engineering, Springer (2005).
●​ Suresh Chandra, S. Dharmaraja, Aparna Mehra, R. Khemchandani, Financial
Mathematics: An Introduction, Narosa Publishing House (2012).
●​ Sheldon Ross, An Elementary Introduction to Mathematical Finance (2nd edition),
Cambridge University Press (Indian Edition), 2005.

Reference Books

●​ Sean Dineen: Probability Theory in Finance: A Mathematical Guide to the Black-Scholes


Formula, American Mathematical Society, Indian edition (2011).
●​ Thomas Mikosh, “Elementary Stochastic Calculus with Finance in view”, World
Scientific (2006).

Mapping of Course Outcomes to Programme Outcomes / Program Specific Outcomes

PO1 PO2 PO3 PO4 PO5 PO6 PO7 PO8

CO1 4 4 5 4 4 2 1 1

CO2 5 4 4 2 3 1 1 1

CO3 4 2 5 3 3 1 1 1

CO4 5 5 3 4 4 1 1 1

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