Description

Deals with the application of stochastic models and numerical techniques to the projection, valuation and risk management of both asset and liability cash flows. Models considered will include simple equity returns models, term structure of interest rate models, models with fixed and interest sensitive decrements. The main applied emphasis of the unit is the use of these models for the consistent valuation of asset and liability cash flows. The unit covers basic stochastic calculus, discrete and continuous time valuation models, stochastic difference and differential equations, forward and backward recursion, analytical solutions and numerical solution techniques including simulation.