UK First-Class or upper Second-Class (2:1) Honours degree, or an equivalent internationally recognised qualification in Mathematics. Applications from candidates with degrees in related disciplines with a substantial mathematical component (such as Physics, Engineering, Chemistry, or Economics) may be considered on an individual basis. Other qualifications with relevant work experience may also be considered. In some cases applicants may be asked to attend an interview. Entry criteria are subject to review and change each academic year.
Months of entry
Mathematical finance is an area of applied mathematics where concepts and techniques that lie close to the heart of pure mathematics are applied routinely to solve a great variety of important practical problems arising in the day-to-day business of financial institutions. The objective of the MSc in Financial Mathematics is to guide students through to a mastery of the sophisticated mathematical ideas underlying modern finance theory, along with the associated market structures and conventions, with emphasis on:
- the modelling of financial assets, both in equity markets and in fixed-income markets;
- the pricing and hedging of options and other derivatives; and
- the quantification and management of financial risk.
However, mathematical skills alone are not sufficient to implement mathematical ideas in practice. You need numerical and computational methods if you want to put theory into practice and work for a financial institution. We therefore offer a programme that provides a balanced mixture of advanced mathematics (probability theory, stochastic calculus, etc), modern finance theory (derivatives, interest rates, foreign exchange, etc), and computational technique (GPU-based high-performance computing).
The MSc in Financial Mathematics offers a range of exciting modules during the Autumn and the Spring terms, followed by a research project leading to a dissertation to be completed during the Summer term.
Financial mathematics is a challenging subject, deployed by sophisticated practitioners in financial markets on daily basis. It builds on the application of advanced concepts in modern probability theory to solve various issues faced by industry practitioners in the areas of pricing, hedging, risk management, and beyond. The main objective of the programme is to provide the knowledge needed to be able to enter into this exciting new area of applied mathematics that is widely used in a range of financial markets.
Main distinguishing features of our programme are:
- We aim to teach some of the key ideas in pricing theory from a modern perspective, using such concepts as pricing kernel and market filtration, as opposed to a more traditional approach based on the historical developments of the subject.
- We include courses on high-performance computing so that theoretical ideas can be implemented.
By the end of the year students will gain familiarity with topics including:
- Financial market conventions
- Derivatives market structure
- Stochastics calculus
- Option pricing and hedging
- Interest rate theory
- Dynamic portfolio theory
- Market information and price formation
- Credit risk management
- Numerical implementation of financial models
- High-performance computing
The programme offers five "core" modules, taken by all candidates, along with a variety of elective modules from which students can pick and choose. There are lectures, examinations and coursework in eight modules altogether, including the five core modules. Additionally, all students complete an individual research project on a selected topic in financial mathematics, leading to the submission of a dissertation.
Probability and stochastics - This course provides the basics of the probabilistic ideas and mathematical language needed to fully appreciate the modern mathematical theory of finance and its applications. Topics include: measurable spaces, sigma-algebras, filtrations, probability spaces, martingales, continuous-time stochastic processes, Poisson processes, Brownian motion, stochastic integration, Ito calculus, log-normal processes, stochastic differential equations, the Ornstein-Uhlenbeck process.
Financial markets - This course is designed to cover basic ideas about financial markets, including market terminology and conventions. Topics include: theory of interest, present value, future value, fixed-income securities, term structure of interest rates, elements of probability theory, mean-variance portfolio theory, the Markowitz model, capital asset pricing model (CAPM), portfolio performance, risk and utility, portfolio choice theorem, risk-neutral pricing, derivatives pricing theory, Cox-Ross-Rubinstein formula for option pricing.
Option pricing theory - The key ideas leading to the valuation of options and other important derivatives will be introduced. Topics include: risk-free asset, risky assets, single-period binomial model, option pricing on binomial trees, dynamical equations for price processes in continuous time, Radon-Nikodym process, equivalent martingale measures, Girsanov's theorem, change of measure, martingale representation theorem, self-financing strategy, market completeness, hedge portfolios, replication strategy, option pricing, Black-Scholes formula.
Interest rate theory - An in-depth analysis of interest-rate modelling and derivative pricing will be presented. Topics include: interest rate markets, discount bonds, the short rate, forward rates, swap rates, yields, the Vasicek model, the Hull-White model, the Heath-Jarrow-Merton formalism, the market model, bond option pricing in the Vasicek model, the positive interest framework, option and swaption pricing in the Flesaker-Hughston model.
Financial computing I - The idea of this course is to enable students to learn how the theory of pricing and hedging can be implemented numerically. Topics include: (i) The Unix/Linux environment, C/C++ programming: types, decisions, loops, functions, arrays, pointers, strings, files, dynamic memory, preprocessor; (ii) data structures: lists and trees; (iii) introduction to parallel (multi-core, shared memory) computing: open MP constructs; applications to matrix arithmetic, finite difference methods, Monte Carlo option pricing.
Portfolio theory - The general theory of financial portfolio based on utility theory will be introduced in this module. Topics include: utility functions, risk aversion, the St Petersburg paradox, convex dual functions, dynamic asset pricing, expectation, forecast and valuation, portfolio optimisation under budget constraints, wealth consumption, growth versus income.
Information in finance with application to credit risk management - An innovative and intuitive approach to asset pricing, based on the modelling of the flow of information in financial markets, will be introduced in this module. Topics include: information-based asset pricing – a new paradigm for financial risk management; modelling frameworks for cash flows and market information; applications to credit risk modelling, defaultable discount bond dynamics, the pricing and hedging of credit-risky derivatives such as credit default swaps (CDS), asset dependencies and correlation modelling, and the origin of stochastic volatility.
Mathematical theory of dynamic asset pricing - Financial modelling and risk management involve not only the valuation and hedging of various assets and their positions, but also the problem of asset allocation. The traditional approach of risk-neutral valuation treats the problem of valuation and hedging, but is limited when it comes to understanding asset returns and the behaviour of asset prices in the real-world 'physical' probability measure. The pricing kernel approach, however, treats these different aspects of financial modelling in a unified and coherent manner.
This module introduces in detail the techniques of pricing kernel methodologies, and its applications to interest-rete modelling, foreign exchange market, and inflation-linked products. Another application concerns the modelling of financial markets where prices admit jumps. In this case, the relation between risk, risk aversion, and return is obscured in traditional approaches, but is made clear in the pricing kernel method. The module also covers the introduction to the theory of Lévy processes for jumps and its applications to dynamic asset pricing in the modern setting.
Financial computing II: High performance computing - In this parallel-computing module students will learn how to harness the power of a multi-core computer and Open MP to speed up a task by running it in parallel. Topics include: shared and distributed memory concepts; Message Passing and introduction to MPI constructs; communications models, applications and pitfalls; open MP within MPI; introduction to Graphics Processors; GPU computing and the CUDA programming model; CUDA within MPI; applications to matrix arithmetic, finite difference methods, Monte Carlo option pricing.
Risk measures, preference and portfolio choice - The idea of this module is to enable students to learn a variety of statistical techniques that will be useful in various practical applications in investment banks and hedge funds. Topics include: probability and statistical models, models for return distributions, financial time series, stationary processes, estimation of AR processes, portfolio regression, least square estimation, value-at-risk, coherent risk measures, GARCH models, non-parametric regression and splines.
Towards the end of the Spring Term, students will choose a topic for an individual research project, which will lead to the preparation and submission of an MSc dissertation. The project supervisor will usually be a member of the Brunel financial mathematics group. In some cases the project may be overseen by an external supervisor based at a financial institution or another academic institution.
Information for international students
English Language Requirements: IELTS: 6 (min 5.5 in all areas); Pearson: 51 (51 in all subscores); BrunELT: 60% (min 55% in all areas).
Fees and funding
Qualification and course duration
Course contact details
- Frances Foster
- 01895 265392