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25836 Financial Decision Making Under Uncertainty

UTS: Business: Finance and Economics
Credit points: 6 cp

Subject level: Postgraduate

Result Type: Grade and marks

Requisite(s): 25832 Financial Markets Instruments AND 25834 Portfolio Analysis AND 35364 Statistics for Quantitative Finance
These requisites may not apply to students in certain courses.
There are also course requisites for this subject. See access conditions.

Handbook description

This subject introduces utility theory, arbitrage principles, portfolio formation and efficient markets at an advanced level. Areas such as the development of mean-variance analysis, the capital asset pricing model and arbitrage pricing theory in single-period equilibrium models and multi-period portfolio analysis in discrete time and in continuous time are examined.

Subject objectives/outcomes

On completion of this subject, students should be able to:

  1. define and illustrate the terms used in the study of financial mathematics including no-arbitrage pricing and hedging and portfolio optimisation
  2. demonstrate and apply techniques for derivative pricing in finance
  3. formulate and solve applied and theoretical problems involving hedging derivatives, change of probability measures and portfolio optimisation
  4. communicate clearly knowledge of the subject matter in financial contexts and solutions to the problems requiring such knowledge
  5. demonstrate preparedness to undertake further study in Numerical Methods of Finance.

Indicative references

Lecture notes

The course will be based on the notes 'Financial Decision Making Under Uncertainty' by Tony He.

Lecture slides

The lecture slides will be distributed to students through UTSOnline.

References

Copeland, T.E. and Weston, F.J. (1988): Financial Theory and Corporate Policy, Addison-Wesley, 3rd ed.

Eichberger, J. and Harper, I.R. (1997) Financial Economics, Oxford.

Huang, Chi-fu and Litzenberger, R.H. (1988) Foundations for Financial Economics, North-Holland.

Levy, H. and Sarnat M. (1984) Portfolio and Investment Section, Prentice-Hall, 3rd edition.

Levy, M, Levy, H. and Solomon S. (2000) Microscopic Simulation of Financial Markets: From Investor Behavior to Market Phenomena, Academic Press, Sydney.

Christian Gollier (2001) The Economics of Risk and Time, The MIT Press, Cambridge.

Cvitanic J. and F. Zapatero (2004) Introduction to the Economics and Mathematics of Financial Markets, The MIT Press, Cambridge, Massachusetts.

Websites

www.sfe.com.au (Sydney Futures Exchange)

www.cbot.com (Chicago Board of Trade)

www.cme.com (Chicago Mercantile Exchange)

www.isda.org (International Swaps and Derivatives Association)

www.riskmetrics.com (RiskMetrics)