KTH Mathematics |

The investment- and risk management problems are fundamental problems that cannot be ignored. In every-day life individuals and companies are often forced to make decisions involving risks and perceived opportunities. The consequences of the decisions are affected by the outcomes of random variables that are to various degrees out of control of the decision maker. Such decision problems arise for instance in financial- and insurance markets. This course aims at presenting sound principles and useful methods for making investment- and risk management decisions in the presence of hedgeable and non-hedgeable risks. There are two fundamental difficulties in coming up with solutions to the problems in investment and risk management. The first is that the decisions are to a large degree based on subjective probabilities of the future values of financial instruments and other quantities. Financial data are the consequences of human actions and sentiments as well as random events. It is impossible to know to what extent historical data explain the future that one is trying to model. This is in sharp contrast to card games or roulette where the probability of future outcomes to a large extent can be considered to be known. The second fundamental difficulty is that decisions depend strongly on the attitude towards risk of the decision maker and possibly also other parties. What is your desired trade-off between risk and reward? It is difficult to accurately formalize a perceived attitude towards risk into a function that goes into the mathematical models. Mathematics can assist in translating a subjective probability distribution and an attitude towards risk and reward into a portfolio choice in a consistent way. However, uncertainty in the input to this procedure will always be passed on to the output and critical judgment cannot be replaced by mathematical sophistication. The mathematics used to present the material is a combination of basic linear algebra, mathematical statistics and optimization theory. A student following this course is assumed to have a good understanding of the theory and tools from the above three areas, however no mathematics fancier than this is assumed or required.
The exam will consist of five problems. Each problem gives, if solved correctly, ten points. Grades are set according to the quality of the written examination. Grades are given in the range A-F, where A is the best and F means failed, and Fx. Fx means that you have the right to a complementary examination (to reach the grade E). The criteria for Fx is F and that an isolated part of the course can be identified where you have shown a particular lack of knowledge and that the examination after a complementary examination on this part can be given the grade E.
H1: Teknikringen 33.
Here is a map of the campus
Welcome, I hope you will enjoy the course! Filip |

Published by: Filip Lindskog Updated: 24/08-2010 |