TOKT1106 — Foundation of Financial Mathematics

This course provides a comprehensive introduction to the theory of interest and the time value of money, with a unified treatment of annuities and loans, followed by bond pricing and the role of the risk-free asset under no-arbitrage. Core topics of classical financial mathematics - including bond yields, duration and convexity, and basic immunization ideas - are developed through arbitrage-based valuation.

In addition, the course integrates foundational concepts from financial engineering, drawing on Mathematics for Finance (Capinski & Zastawniak), including:

Arbitrage and the law of one price

Risk-free assets and arbitrage pricing of bonds

Discrete-time models of risky assets

Binomial market models and risk-neutral valuation

The course emphasizes practical implementation, with regular Excel-based assignments and optional Python exercises. It is designed to prepare students for SOA Exam FM and to provide a rigorous foundation for further study in quantitative finance and risk management.

Requirements for taking final /terminal exams

Students are allowed to take the final exam if their attendance score reaches 5 points or more (on the scale of 10).

Requirements for attending classes

Students are responsible for attending all classes. In case of absence from school due to force majeure reasons, sufficient and reasonable proofs must be provided. For each absence, 1 point will be deducted 1 point. Students who miss any classes more than 3 times, with or without reason, will be considered as failing to complete the course and have to re-register.

Students will be awarded points for constructive comments, these points are added to attendance points and group assignments.

Groups who do not submit the group work will receive a score of 0 (zero). Late submissions will be deducted for each day of late submission.

Requirements for in-class behaviour

The course is conducted on the principle of respecting learners and lecturers. Any behaviour that affects the teaching and learning process is strictly prohibited.

Students must come to class on time. Students who are late more than 10 minutes after class starts will not be allowed to attend the class. Do not make noise and affect others during the learning process.

Laptops and tablets are only used for the purpose of taking notes for and calculating for lectures and exercises, absolutely forbidden to use for other purposes.