of the m. sc. degree programme quantitative finance · 1. structure of curriculum: m.sc....

module manual of the M. Sc. degree programme

Quantitative Finance

Date: Apr-13

1

A. Overview of the Degree Programme ............................................................................................................2

1. Structure of Curriculum: M.Sc. Quantitative Finance ............................................................................. 2

2. Programme Schedule: M.Sc. Quantitative Finance ................................................................................. 3

B. Modules provided by the Faculty of Business, Economics and Social Sciences ...........................................4

1. Modules in the Compulsory Section Financial Economics ...................................................................... 4

Theory of Financial Economics .....................................................................................................................4

Capital Markets and Corporate Finance .......................................................................................................9

2. Modules in the Compulsory Section Econometrics for Finance ............................................................ 11

Advanced Statistics I .................................................................................................................................. 11

Econometrics I ........................................................................................................................................... 12

Empirical Methods for Finance .................................................................................................................. 13

C. Modules provided by the Faculty of Mathematics and Natural Sciences ................................................. 15

1. Modules in the Compulsory Section Mathematical Finance ................................................................. 15

Computational Finance.............................................................................................................................. 15

Mathematical Finance ............................................................................................................................... 16

3. Modules of the Specialization in Mathematical Finance ...................................................................... 17

Risk Management ...................................................................................................................................... 17

Current Issues in Mathematical Finance ................................................................................................... 18

Current Issues in Computational Finance .................................................................................................. 19

Partial Differential Equations and Mathematical Finance ......................................................................... 20

Actuarial Mathematics and Risk Theory .................................................................................................... 21

Optimization in Mathematical Finance ..................................................................................................... 22

Models with jumps in Mathematical Finance ........................................................................................... 23

Interest Rate Theory .................................................................................................................................. 24

D. Seminars .................................................................................................................................................... 25

Seminar on Computational Finance and Mathematical Finance .............................................................. 25

Seminar on Stochastics and Mathematical Finance .................................................................................. 26

Seminar on Financial Economics ............................................................................................................... 27

E. Overview of the Minor Subjects ................................................................................................................ 28

1. Economics .............................................................................................................................................. 28

2. Business ................................................................................................................................................. 28

4. Comparative Economic Sociology ......................................................................................................... 28

5. Political Sciences .................................................................................................................................... 29

6. Agricultural Economics .......................................................................................................................... 29

7. Business Information Systems ............................................................................................................... 29

8. Computer Sciences ................................................................................................................................ 29

9. Empirical Economics .............................................................................................................................. 29

F. Alphabetical Directories ............................................................................................................................ 30

2

A. Overview of the Degree Programme

1. Structure of Curriculum: M.Sc. Quantitative Finance Module Courses SWS* ECTS credits

per module ECTS credits per

section

Econometrics for Finance 24

Econometrics I

Advanced Statistics I

Empirical Methods for Finance

3 lect + 2 tut 3 lect + 2 tut

2 x 2 lect

5 5 4

8 8 8

Financial Economics 20-26 Theory of Financial Economics Capital Markets and Corporate Finance Seminar on Financial Economics**

3 x 2 lect 2 x 2 lect

sem

6 4 2

12 8 6

Mathematical Finance 26-32 Mathematical Finance Computational Finance Specialization in Mathematical Finance Seminar on Mathematical Finance*

4 lect + 2 tut 4 lect + 2 tut 2 lect + 1 tut

S

6 6 3 2

10 10 6 6

Minor subject 14 - Economics*** - Business - Comparative Economic Sociology - Political Sciences - Agricultural Economics - Business Information Systems - Computer Sciences - Empirical Economics***

Varies for the different minor subjects.

*** Currently, Empirical Economics and Economics are the only minor subjects where English as the language of instruction can be

guaranteed.

Master´s thesis 30

*"Semesterwochenstunden" = weekly 45-minute teaching for the duration of one semester of about 12 teaching weeks. ** The seminar can be completed either in the area of Financial Economics or Mathematical Finance.

3

2. Programme Schedule: M.Sc. Quantitative Finance

Module Courses Type of course P/WP PL SWS

ECTS credits per

Sem. year

1st

sem

es

ter

VWL-PEcon-Eco1 Econometrics I V+Ü P K 5 8

VWL-PQuEc-AdvStat1 Advanced Statistics I V+Ü P K 5 8

MNF-math-finmath1-QF Mathematical Finance V+Ü P K 6 10

VWL-QF-FinEc Theory of Financial Economics I1

V(+Ü) WP K 2 4

18 30

2n

d s

eme

ster

VWL-QF-EmpMeth Econometrics for Financial Markets4

V P MP 2 4

VWL-QF-FinEc Theory of Financial Economics II1 V(+Ü) WP K 2 4

MNF-math-compfin-QF Computational Finance V+Ü P K 6 10

VWL-QF-FinEc Theory of Financial Economics III1

V(+Ü) WP K 2 4

BWL-QF-FIWI Capital Markets & Corporate Finance I2

V WP K 2 4

Minor subject: course 1* WP 2 4

16 30 60

3rd

sem

est

er VWL-QF-EmpMeth Statistics for Financial Markets

4 V P MP 2 4

3 Specialization in Mathematical Finance

V+Ü WP K 3 6

BWL-QF-FIWI Capital Markets & Corporate Finance II2

V WP K 2 4


VWL-QF-Sem Seminar S WP HS 2 6


13 30

4th semester Master´s thesis 30

30 60

120

Explanations: P / WP: status of the module: P = Compulsory / WP = Optional PL: type of examination: K = written examination, HA = essay and presentation, MP = oral examination SWS: Semesterwochenstunden = weekly 45-minute teaching for the duration of one semester of about 12 teaching weeks. types: V = lecture, Ü = tutorial, S = seminar WEcon: Optional modules in Economics AEM: Optional module Applied Empirical Economics * imported modules from other faculties (English as language of instruction cannot be guaranteed)

1: The courses "Theory of Financial Economics I-III" can be elected from the courses of the module Theory of Financial Economics: 1. International Financial Markets, 2. Theory of Financial Markets, 3. Pricing in Derivative Markets, 4. Economics of Risk and Uncertainty, 5. Foreign Exchange Markets–Theory and Empirics, 6. Applied Econometrics of Foreign Exchange Markets, 7. Advanced Topics in Financial Economics.

2: The courses "Capital Markets and Corporate Finance I and II" can be elected from the courses of the module Capital Markets and Corporate Finance: 1. Investments and Capital Markets, 2. Theory of Corporate Finance, 3. Behavioral Finance.

3: The specialization in Mathematical Finance can be elected from the following modules of the Faculty of Mathematics and Natural Sciences: 1. Current Issues in Mathematical Finance (Aktuelle Probleme der Finanzmathematik), 2. Current Issues in Computational Finance (Aktuelle Probleme aus Numerik und Finanzmathematik), 3. Partial Differential Equations and Mathematical Finance (Partielle Differentialgleichungen und Finanzmathematik), 4. Risk Management (English language guaranteed), 5. Actuarial Mathematics and Risk Theory (Versicherungsmathematik und Risikotheorie), 6. Optimization in Mathematical Finance (Optimierungsprobleme in der Finanzmathematik), 7. Models with Jumps in Mathematical Finance (Sprungmodelle in der Finanzmathematik), 8. Interest Rate Theory (Zinsmodelle).

4: The module Empirical Methods for Finance consists of the following courses: 1. Econometrics for Financial Markets, 2. Statistics for Financial Markets.

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B. Modules provided by the Faculty of Business, Economics and Social Sciences

1. Modules in the Compulsory Section Financial Economics

module name Theory of Financial Economics

module number VWL-WEcon-FinEc

term / duration 1-3/ 2 semesters

responsible person for this module

Prof. Dr. Thomas Lux 0431-880-2163 [email protected]

attribution to curriculum degree programme status

M.Sc. Economics Optional Section in Economics

M.Sc. Quantitative Economics Optional Section in Economics

M.Sc. Quantitative Finance Compulsory Section Financial Economics

M.Sc. Betriebswirtschaftslehre Minor Subject Economics

M.Sc. Wirtschaftsinformatik Specialization Economics

courses title credits status time of attendance teachers term

lecture + tutorial: International Financial Markets

4 ECTS compulsory

elective l: 2 SWS (30 hrs.) t: 2 SWS (30 hrs.)

Prof. Dr. Lux summer

lecture + tutorial: Theory of Financial Markets

4 ECTS compulsory


Prof. Dr. Lux winter

lecture + tutorial: Pricing in Derivative Markets

4 ECTS compulsory


Prof. Dr. Lux summer

lecture: Foreign Exchange Markets-Theory and Empirics

4 ECTS compulsory

elective l: 2 SWS (30 hrs.)

Prof. Dr. Reitz winter

lecture: Finance and Development 4 ECTS compulsory elective

l: 2 SWS (30 hrs.) Prof. Dr. Menkhoff summer

lecture: Applied Econometrics of Foreign Exchange Markets

4 ECTS compulsory


Prof. Dr. Reitz summer

lecture: : Advanced Topics in Financial Economics

4 ECTS compulsory

elective l: 2 SWS (30 hrs.) t: 2 SWS (30 hrs.) Prof. Lux, Prof. Reitz, Dr. Franke,

N.N. n. s.

credit points and grade 12 ECTS German Scale, ECTS-System

workload entire module 360 hours

language English

requirements for performance assessment

written exam in three of the lecture courses

educational objectives / competencies

International Financial Markets: The lecture covers modern theories that view foreign exchange markets and exchange rate determination from a finance perspective. Relevant topics include the importance of investors’ expectations and speculative behavior in the foreign exchange market and its explanatory power for the observation of excessive volatility of foreign exchange rates compared to macroeconomic fundamentals. We also discuss the effects of political interventions to curb speculative activity and the determinants of major

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historical currency crises. Theory of Financial Markets: After an introduction to the empirical stylized facts of financial markets, the lecture discusses the theoretical foundations and the empirical validity of the seminal ‘efficient market hypothesis’. We continue with models of price formation in accordance with rational information revelation through transactions and also review approaches in the recent ‘behavioral finance’ literature that emphasize the role of speculative activity and bounded rational behavior of investors. Pricing in Derivative Markets: The course provides an introduction to the pricing of financial derivatives and is logically split into two parts. The first part deals with the mechanics of derivative markets and instruments. The second part focuses on the mathematical concepts that are used to price these derivatives, often summarized under the catch-all phrase of financial engineering. Foreign Exchange Markets – Theory and Empirics. The lecture provides an introduction to market microstructure of foreign exchange trading. The role of order flow and inventory risk management is analyzed in a theoretical and an empirical framework. In addition, the trading perspectives of importers/exporters, international investors, and policy makers are discussed by deriving and empirically testing equilibrium relationships in foreign exchange markets. Finance and Development This lecture is about development economics from the perspective of financial issues. The role of financial institutions in the development process is analyzed. Then problems in three areas are discussed: financial crises at the macro level, information and institutional problems in financial / loan markets and individual behavior towards financial issues. Applied Econometrics of Foreign Exchange Markets The course introduces into empirical analysis of modern exchange rate economics. After providing an introduction to RATS programming important concepts of exchange rate economics such as purchasing power parity, uncovered interest parity, ARCH effect in FX returns are econometrically tested using data from various sources. At the end of this practitioners' course participants will be able to derive empirical results from their own econometric programs. Seminar on Financial Economics: Students are required to research recent developments in connection with given topics of economic nature, produce a term/seminar paper done independently, and present the content of that paper in class. In doing so they will acquaint themselves with the essentials of academic work and presentation technique. This will also lay the foundations for the completion of the MA thesis at a later date.

knowledge transfer Interactive lecture and tutorial, lecture notes, literature studies, exercises

contents

references International Financial Markets: 1. Trading Volume and Organization of International Financial Markets 2. Foreign Exchange Markets and Macroeconomic Theory

a. The Lack of Explanatory Power of Traditional Macroeconomic Models of the Exchange Rate

b. Speculative Efficiency of the Foreign Exchange Market? 3. Speculation, Excess Volatility and Stabilization of the Exchange Rate

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a. Rational Speculative Bubbles in Foreign Exchange Markets b. "Peso-Problems" and Noise Traders c. Interaction of Chartists and Fundamentalists d. The Tobin Tax and other Regulatory Interventions

4. Exchange Rate Target Zones and "Dirty Floating" a. Endogeneous Stabilization through Target Zones b. The Credibility of Target Zones

5. Exchange Rate Crisis and Speculative Attacks a. The Collaps of Unsustainable Fixed Exchange Rates b. Crisis and Multiple Equilibria c. The Crisis in South-East Asia and "Third Generation" Models of Exchange

Rate Crisis d. Contagion Effects and the Role of the IMF

6. Microstructure of the Foreign Exchange Markets a. Properties of High-Frequency Data of Foreign Exchange Markets b. Adaption of Microstructure to Foreign Exchange Markets

Cuthbertson, K.: "Quantitative Financial Economics: Stocks, Bonds and Foreign Exchange". Reprint, Chichester 2000.

Hallwood, C./ McDonald, R.: "International Money and Finance", 3rd. ed. Oxford 2000.

Gärtner, M.: "Macroeconomics under Flexible Exchange Rates", New York 1993, (German version: Gärtner, M. (2004), Makroökonomik flexibler und fester Wechselkurse, 3., vollständig überarbeitete und erweiterte Auflage, Berlin [u.a.].)

Nelson, M.: "International Macroeconomics and Finance: Theory and Econometric Methods", Blackwell Publishers, 2001.

Gandolfo, G.: "International Finance and Open-Economy Macroeconomics", Springer, Berlin 2001.

Theory of Financial Markets: 1. "Stylized facts“ of financial market data

a. The random walk property of prices b. The distributional properties of returns c. The dynamics of volatility

2. Financial market efficiency and the problem of information transmission a. Equilibrium prices and the "efficient market hypothesis" (EMH) b. The Grossman/Stiglitz-paradoxon of the impossibility of informational

efficiency markets c. The revelation of information through transactions d. Information transmission under strategic behavior

3. Pricing on incomplete markets a. Speculation: Stabilizing or destabilizing?

i. Keynes vs. Friedman: A survey of older approaches ii. The theory of rational speculative bubbles

iii. "Bounded rational“ speculation: models with chartists and fundamentalists

b. "Noise trading“: Survival with wrong information c. Imitation and development of speculative bubbles d. Explanation of stylized facts in "artificial“ financial market models

4. Bank panics, financial crises and the hypothesis of the fragility of the financial sector

Aschinger, G.: Börsenkrach und Spekulation: Eine ökonomische Analyse.

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München 1995

Barucci, E.: Financial Markets Theory: Equilibrium, Efficiency and Information. London 2003

Brunnermeiner, M.K.: Asset Pricing under Asymmetric Information. Oxford 2001

Campell, J./ Lo, A./ MacKinlay, A.: The Econometrics of Financial Markets. Princeton 1997.

Cuthbertson, K.: Quantitative Financial Economics: Stocks, Bonds and Foreign Exchange. New York 1996

Dacorogna, M.M. / Gencay, R. / Müller, U.A./ Olsen, R.B./ Pictet, O.V.: An Introduction to High-Frequency Finance. New York, London 2001.

O´Hara, M.: Market Microstructure Theory. Oxford 1995

Pricing in Derivative Markets: The first part of the course covers the mechanics: 1. Introduction, conventions, examples 2. Forwards and futures 3. Simple interest rate derivatives 4. Swaps 5. Options The second part of the course deals with pricing tools: 1. Binomial trees 2. Black-Scholes-Merton approach to option pricing 3. General concept of synthetic replication 4. Equivalent martingale measures 5. Credit risk and credit derivatives

Hull, J. “Options, Futures and Other Derivatives”, 6. ed., Prentice Hall, 2006

Neftci, S.: “Principles of Financial Engineering”, Elsevier AP, 2004

Jarrow, R.: “Modelling Fixed Income Securities and Interest Rate Options”, 2. ed., Stanford University Press, 2002.

Jarrow, R. and S. Turnbull: “Derivative Securities”, 2. ed., Academic Press, 2000.

Foreign Exchange Markets – Theory and Empirics. 1. Description of Foreign Exchange Trading

a. FX Instruments b. FX Market Segments c. FX Market Participants

2. The Dealers’ Perspective a. The Single Dealer Approach b. Dealer Trading in Segmented Markets c. The Multiple Dealer Approach

3. The Customers’ Perspective a. Importers / Exporters b. International Investors

4. The Policy Makers’ Perspective a. Policy Makers’ Perception of FX Performance b. Policy Options

Lyons, R.: The Microstructure Approach to Exchange Rates, MIT Press Cambridge, MA., 2001

Sarno, L./ Taylor, M.: "The Economics of Exchange Rates". Cambridge University Press, Cambridge 2002.

Deutsche Bundesbank: “The Microstructure Approach to Exchange Rate Theory”,

8

Monthly Bulletin 1/2008.

Finance and Development 1. Principles of Financial Development 2. The Asian Financial Crisis 3. Microfinance in Rural Areas 4. Risk Attitude and Development Ray, D.: “Development Economics”. Princeton University Press, 1998.

Applied Econometrics of Foreign Exchange Markets 1. Introduction to RATS programming 2. Selected concepts of exchange rate economics and their empirical applications 3. Introduction to current research topics

Brooks, C., RATS Handbook for Introductory Econometrics for Finance, Cambridge University Press 2008.

Advanced Topics in Financial Economics Varying topics in the field of financial economics. This course only takes place occasionally.

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module name Capital Markets and Corporate Finance

module number BWL-QF-FIWI

term / duration 2-3 / 2 semesters


Prof. Dr. Peter Nippel 0431-880-3119


M.Sc. Quantitative Finance Compulsory Section Financial Economics


lecture: Investments and Capital Markets

4 ECTS compulsory

elective l: 2 SWS (30 hrs.)

Prof. Dr. Nippel winter

lecture: Finanzierungstheorie (german) Prof. Dr. Nippel

4 ECTS summer

compulsory elective

l: 2 SWS (30 hrs.) Or Lecture: Corporate Finance (engl.) Prof. Dr. Klos

4 ECTS winter

lecture: Behavioral Finance 4 ECTS compulsory elective

l: 2 SWS (30 hrs.) Prof. Dr. Klos summer



language English (or German)


written exams in two of the courses


Investments and Capital Markets This lecture considers the core models of investment theory, market equilibrium, and contingent claims pricing. This is the prerequisite for further research and professional career in the investment area. Theory of Corporate Finance Understanding the impact of capital structure decisions on the value of a firm, especially those resulting from a discriminating tax system with corporate and personal tax. Proficiency in dealing with the Discounted-Cash-Flow-Methods (DCF) of firm valuation under the German tax regime Behavioral Finance: Behavioral Finance is an approach to financial markets that has emerged, at least in part, in response to the difficulties faced by the traditional paradigm of finance. It argues that some financial phenomena can be understood better using models in which some agents are not fully rational. The course will provide an overview across these models and discuss some of them in detail. There are no prerequisites for this course.


contents

references Investments and Capital Markets: 1. Choice under Uncertainty 2. Portfolio-Theory (Markowitz and modern approaches) 3. Capital Asset Pricing Model 4. Time State Preference Model 5. Pricing of Derivatives

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6. Structured Investments

Copeland Thomas E./Weston, J. Fred/Shastri, Kuldeep, Financial Theory and Corporate Policy, 4. Aufl., 2005.

Hull, John, Options, Futures and other Derivatives, 7. Aufl., 2009. Myers, Steward C., A Time-State-Preference-Model of Security Valuation. Journal

of Financial and Quantitative Analysis, 3 (1968), 1-33. Sharpe, William F./Alexander, Gordon J./Bailey, Jeffrey V., Investments, 5. Aufl.,

1995. Theory of Corporate Finance: 1. Capital structure and project value under conditions of perfect capital market 2. Capital structure and project value under conditions of perfect capital market with

tax 3. The German tax regime 4. Free cash flow 5. DCF-methods at a first glance 6. APV 7. WACC 8. Capital-Cashflow 9. Equity-approach 10. Cost of Capital

Brealey, Richard/Myers, Stewart C./Allen, Franklin, Corporate Finance, 9th Ed.., 2009.

Copeland Thomas E./Weston, J. Fred/Shastri, Kuldeep, Financial Theory and Corporate Policy, 4th Ed., 2005.

Ross, Stephen A./Westerfield, Randolph W./Jaffe, Jeffrey, Corporate Finance, 6th Ed., 2002.

Welch, Ivo, Corporate Finance, 2009 Behavioral Finance: This course aims to describe and analyze behavioral aspects of individual decision- making and its impact on financial markets. Major topics include heuristics and biases in individual decision-making, prospect theory, descriptive issues of investor behavior, capital market anomalies, and behavioral theories on asset pricing.

Barberis, N./ Thaler, R. (2003): A Survey of Behavioral Finance, in: Handbook of the Economics of Finance, Chapter 18, 1054-1123

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2. Modules in the Compulsory Section Econometrics for Finance

module name Advanced Statistics I

module number VWL-PQuEc-AdvStat1

term / duration 1 / 1 semester


Prof. Dr. Roman Liesenfeld 0431-880-2166 [email protected]


M.Sc. Quantitative Finance Compulsory Section Econometrics for Finance

M.Sc. Finanzmathematik Compulsory Section Econometrics for Finance

M.Sc. Quantitative Economics Compulsory Section Econometrics for Finance

M.Sc. Economics Compulsory Section in Economics(replacement)

M.Sc. Betriebswirtschaftslehre Minor Subject Statistics & Econometrics

M.Sc. Wirtschaftsinformatik Specialization in Economics

courses title credits status time of attendance

teachers term

lecture + tutorial: Advanced Statistics 1 8 ECTS required course

l: 3 SWS (45 hrs.) t: 2 SWS (30 hrs.) Prof. Dr. Liesenfeld winter



language English


written exam


For the students to become familiar with, to understand and to apply the concepts of mathematical statistics underlying the procedures of statistical inference on which the statistical and econometric analysis of economic data are based.


contents

references

1. Elements of Probability Theory 2. Random Variables, Densities and Distribution Functions 3. Moments of Random Variables 4. Parametric Families of Distributions 5. Basic Asymptotics 6. Sample Moments and Sampling Distributions

Mittelhammer, R.C.(1996), Mathematical Statistics for Economics and Business. Springer-Verlag, New-York.

Mood, A.M., Graybill, F.A.and D.C. Boes (1974), Introduction to the Theory of Statistics. McGraw Hill, Boston.

Casella, G.and R.Berger (2002). Statistical Inference. Pacific Grove: Duxbury.

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module name Econometrics I

module number VWL-PEcon-Eco1



Prof. Dr. Helmut Herwartz 0431-880-2417 [email protected]

attribution to curriculum

degree programme status


M.Sc. Finanzmathematik Compulsory Section Econometrics for Finance

M.Sc. Economics Compulsory Section Volkswirtschaftslehre

M.Sc. Quantitative Economics Compulsory Section Volkswirtschaftslehre

M.Sc. Betriebswirtschaftslehre Minor Subject Statistics & Econometrics

M.Sc. Wirtschaftsinformatik Specialization in Economics


lecture +tutorial: Econometrics I 8 ECTS compulsory

l: 3 SWS (45 hrs.) t: 2 SWS (30 hrs.) Prof. Dr. Herwartz winter



language English


written exam


1. This course builds upon the basic econometric techniques addressed in ‘Einführung in die Ökonometrie’. Throughout, regressors are considered stochastic. Students will learn to deal with dynamic models and non-stationary time series. The focus is on single equation models. The course will require students to be familiar with standard econometric software as Eviews and Matlab.

2. After this module, the students will have a solid econometric foundation necessary for participating in advanced courses. Moreover, they will be able to perform advanced univariate time series studies and understand the modern macroeconometric literature.


contents

references

1. Stochastic Regressors (Nonlinear LS-estimation, autocorrelation, instrumental variable estimation)

2. Generalized methods of moments (GMM) 3. Dynamic Models (Stochastic processes, nonstationary stochastic processes,

convergence of moments of I(1) variables) 4. Regression with nonstationary variables (Spurious regression, cointegration, unit

roots, weak exogeneity)

Banerjee, A., J. Donaldo, J.W. Galbraith, D.F. Hendry (1993): Co-Integration, Error Correction and the Econometric Analysis of Non-Stationary Data, Oxford University Press.

Greene, W.H. (2003): Econometric Analysis, Philip Allan.

Hackl, P. (2005): Einführung in die Ökonometrie, München.

Hamilton, J.D. (1994): Time Series Analysis, Princeton University Press, selected Chapters

Judge, G.G., R.C. Hill, W.E. Griffiths, H. Lütkepohl, T.S. Lee (1988): Introduction to the Theory and Practice of Econometrics, John Wiley & Sons.

Johnston, J., J. Dinardo (1997): Econometrics Methods, McGraw Hill.

Mittelhammer, R.C., G.G. Judge, D.J. Miller (2000): Econometric Foundations,

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Cambridge University Press.

EViews

module name Empirical Methods for Finance

module number VWL-QF-EmpMeth

term / duration 2-3 / 2 semester


Prof. Dr. Roman Liesenfeld 0431-880-2166 [email protected]

attribution to curriculum

degree programme status



lecture: Econometrics for Financial Market 4 ECTS required course

l: 2 SWS (30 hrs.) Prof. Dr. Markus Haas summer

lecture: Statistics for Financial Markets 4 ECTS required course

l: 2 SWS (30 hrs.) Prof. Dr. Roman Liesenfeld winter



language English


oral exams in the two courses


Econometrics for Financial Market This course offers the possibility for the students to become familiar with special econometric techniques required to work with financial market data. Students will get familiar with stylized facts of financial market data and shall learn how to take the latter into account within the framework of (multivariate) dynamic modelling. Each theoretical progress will be followed by an introduction to the software package Matlab and EViews for practical exercises with some data. From the applied part, students will get the ability to solve typical issues arising in portfolio management and asset pricing (CAPM, option pricing, Value-at-risk). The variety of parametric and nonparametric modelling approaches will enable students to critically assess relative model performance which is crucial in financial practice. Statistics for Financial Markets For the students to become familiar with statistical methods used to analyze financial data. These methods include test procedures used for an empirical investigation of the efficiency of financial markets, statistical models for the volatility of asset returns and for high-frequency data, and statistical concepts used to measure the market risk in risk management. Students will practice the use of these statistical methods using the software packages Eviews and Matlab.


contents

references

Econometrics for Financial Markets 1. Stylized Facts of Financial Market Data 2. Univariate (G)ARCH Models 3. Multivariate GARCH Models 4. Realized Volatility 5. Applications: Dynamic CAPM, Option Pricing under Heteroskedasticity, Value-at-risk

Andersen, T.G., T. Bollerslev, F.X. Diebold, P. Labys (2003): Modeling and Forecasting Realized Volatility; Econometrica, 71, 579–625.

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Bauwens, L., S. Laurent, J.V.K. Rombouts (2003): Multivariate GARCH Models: A Survey, Journal of Applied Econometrics, 21, 79--109.

Duan, J.-C. (1995): The GARCH Option Pricing Model, Mathematical Finance 5, 13–32.

Herwartz, H. (2005): Conditional Heteroskedasticity, in: Lütkepohl, H., Krätzig, M.: Applied Time Series Analysis, Chap. 5, Cambridge University Press.

Statistics for Financial Markets 1. Introduction: Asset Returns and Their Properties 2. Forecasting Asset Returns and Market Efficiency 3. Volatility Models For Return Series: ARCH-, GARCH-, and Stochastic Volatility Models 4. Market Microstructure and High-Frequency Data 5. Value at Risk and Extreme Value Theory

Campbell, J.Y., A.W. Lo, A.C. MacKinlay (1997): The Econometrics of Financial Markets, Princeton University Press.

Hamilton, J.D. (1994): Time Series Analysis, Princeton University Press, Princeton, New Jersey.

Taylor, S. (2005): Asset Price Dynamics, Volatility, and Prediction. Princeton University Press.

Tsay, R. (2005): Analysis of Financial Time Series. John Wiley & Sons, New York.

Variations of the module attribution to curriculum specifics

VWL-QF-EmpMeth-fm: Empirical Methods for Finance M.Sc. Finanzmathematik, Bereich Econometrics for Finance Only one of the two courses has to be successfully completed.

15

C. Modules provided by the Faculty of Mathematics and Natural Sciences

1. Modules in the Compulsory Section Mathematical Finance

module name Computational Finance

module number MNF-math-compfin-QF



Prof. Dr. Jan Kallsen 0431-880-2783 [email protected]


M.Sc. Quantitative Finance Compulsory Section in Mathematical Finance


teachers term

lecture +tutorial: Computational Finance

10 ECTS

compulsory l: 4 SWS (60 hrs.) t: 2 SWS (30 hrs.)

Prof. Dr. Kallsen summer



language English


Active and regular participation Written exam (max. 180 min.) or oral exam (max. 30 min.)


Basic knowledge of computational finance


contents

references

1. Derivative pricing 2. Numerical integration 3. Tree based methods 4. Finite difference method 5. Finite element method 6. Monte-Carlo method 7. Integral transform method

References are given in the course.

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module name Mathematical Finance

module number MNF-math-finmath1-QF



Prof. Dr. Albrecht Irle 0431-880-4650 [email protected]


M.Sc. Quantitative Finance Compulsory Section in Mathematical Finance


teachers term

lecture +tutorial: Mathematical Finance 10 ECTS compulsory

l: 4 SWS (60 hrs.) t: 2 SWS (30 hrs.) Prof. Dr. Irle winter



language English




Basic knowledge of mathematical finance


contents

references

1. Introduction to pricing theory 2. Stochastic foundation of discrete markets 3. Derivative pricing in discrete markets 4. Risk neutral measures and the fundamental theorem of asset pricing 5. Cox-Ross-Rubinstein model 6. American claims and optimal stopping 7. Black Scholes model and Black Scholes formula

Irle, Albrecht: Finanzmathematik, Teubner.

More references are given in the course.

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3. Modules of the Specialization in Mathematical Finance

module name Risk Management

module number MNF-math-riskman-QF





M.Sc. Quantitative Finance Specialization in Mathematical Finance


teachers term

lecture +tutorial: Risk Management 6 ECTS compulsory

l: 2 SWS (30 hrs.) t: 1 SWS (15 hrs.) Prof. Dr. Kallsen winter



language English




Knowledge of models for quantifying financial risks


contents

references

1. Credit risk 2. Market risk 3. Operational risk 4. Rating methods 5. Credit portfolio models 6. Credit derivatives and their valuation 7. Risk measures 8. Applications of extreme value theory

Mc Neil, Frey, Embrechts: Quantitative Risk Management.

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module name Current Issues in Mathematical Finance (Aktuelle Probleme der Finanzmathematik)

module number MNF-math-probl_fima-QF







teachers term

lecture +tutorial: Aktuelle Probleme der Finanzmathematik

6 ECTS


Prof. Dr. Irle n.s.



language German (English upon request)




Acquisition of ability to deal with recent research topics from the field of mathematical finance.


contents

references

Recent developments in the field of mathematical finance.

A detailed outline and references will be announced in preliminary to the course.

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module name Current Issues in Computational Finance (Aktuelle Probleme aus Numerik und Finanzmathematik)

module number MNF-math-prbl_fe-QF







teachers term

lecture +tutorial: Aktuelle Probleme aus Numerik und

6 ECTS


Prof. Dr. Kallsen n.s.



language German, (English upon request)




Acquisition of ability to deal with recent research topics from the field of financial engineering.


contents

references

Recent Developments in the field of financial engineering.

A detailed outline and references will be announced in preliminary to the course.

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module name Partial Differential Equations and Mathematical Finance (Partielle Differentialgleichungen und Finanzmathematik)

module number MNF-math-parfi-QF







teachers term

lecture +tutorial: Partielle Differentialgleichungen und Finanzmathematik

6 ECTS


Prof. Dr. Irle n.s.







Acquisition of basic knowledge of in the field of partial differential equations and their application in mathematical finance.


contents

references

1. Partial differential equations 2. Heat equation 3. Solution methods 4. Black-Scholes differential equation 5. Stochastic differential equations

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module name Actuarial Mathematics and Risk Theory (Versicherungsmathematik und Risikotheorie)

module number MNF-math-veri-QF







teachers term

lecture +tutorial:Versicherungsmathematik und Risikotheorie

6 ECTS


Prof. Dr. Irle n.s.







Acquisition of basic knowledge of risk theory with focus on non-life insurance.


contents

references

1. Models for the claim number process 2. Fitting the claim size distribution 3. Collective risk model 4. Ruin theory 5. Insurance premium principles

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module name Optimization in Mathematical Finance (Optimierungsprobleme in der Finanzmathematik)

module number MNF-math-optpro-QF







teachers term

lecture +tutorial: Optimierungsprobleme in der Finanzmathematik

6 ECTS









Acquisition of ability to deal with optimization problems from mathematical finance.


contents

references

1. Optimal stopping 2. Portfolio optimization 3. Hedging problems 4. Stochastic control 5. Martingale methods

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module name Models with jumps in Mathematical Finance (Sprungmodelle in der Finanzmathematik)

module number MNF-math-sppro-QF







teachers term

lecture +tutorial: Sprungmodelle in der Finanzmathematik

6 ECTS









Acquisition of ability to deal with models with jumps in mathematical finance.


contents

references

1. Levy processes 2. Stochastic calculus for jump processes 3. Markets, strategies, arbitrage, derivatives 4. Variance-optimal hedging 5. Utility indifference pricing and hedging

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module name Interest Rate Theory (Zinsmodelle)

module number MNF-math-zimo-QF







teachers term

lecture +tutorial: Zinsmodelle 6 ECTS compulsory

l: 2 SWS (30 hrs.) t: 1 SWS (15 hrs.) Prof. Dr. Kallsen winter







Acquisition of ability to deal with model from interest rate theory.


contents

references

1. Basics 2. Interest rate derivatives 3. Short rate models 4. Change of numeraire 5. Affine term structure 6. Factor models 7. Heath-Jarrow-Morton 8. Libor market models

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D. Seminars module name Seminar on Computational Finance and Mathematical Finance

(Seminar Numerik und Finanzmathematik)

module number MNF-math-sem_cfi_msc-QF





M.Sc. Quantitative Finance compulsory elective


teachers term

seminar: Seminar Numerik und Finanzmathematik

6 ECTS

compulsory 2 SWS (30 hrs.) Prof. Dr. Kallsen winter



language English


Active and regular participation Oral presentation at an advanced stage (90 min.)


Acquisition of research and communication competencies by self-dependent elaboration and presentation of an advanced topic from mathematical finance based on mathematical research papers.


contents

references

Varying, specialized and advanced literature from mathematical finance.

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module name Seminar on Stochastics and Mathematical Finance (Seminar Stochastik und Finanzmathematik)

module number MNF-math-sem_fma_msc-QF







teachers term

seminar: Seminar Stochastik und Finanzmathematik

6 ECTS

compulsory 2 SWS (30 hrs.) Prof. Dr. Irle n.s.



language English


Active and regular participation Oral presentation at an advanced stage (90 min.)


Acquisition of research and communication competencies by self-dependent elaboration and presentation of an advanced topic from mathematical finance based on mathematical research papers.


contents

references

Varying, specialized and advanced literature from mathematical finance.

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module name Seminar on Financial Economics

module number VWL-QF-Sem



Prof. Dr. Thomas Lux 0431-880-2163 [email protected]




teachers term

seminar on financial economics 6 ECTS compulsory elective

2 SWS (30 hrs.) Prof. Dr. Lux, Prof. Dr. Reitz n.s.

Seminar on Capital Markets and Corporate Finance (Finanzwirtschaft)

6 ECTS compulsory

elective 2 SWS (30 hrs.)

Prof. Dr. Nippel, Prof. Dr. Klos n.s.



language English


Seminar on Financial Economics:

term paper, comment, oral presentation in the seminar

Forschungsseminar Finanzwirtschaft: Term paper, oral presentation and abstract (Thesenpapier), case studies and colloquium respectively.


Seminar on Financial Economics:

Students are required to research recent developments in connection with given topics of an economic nature, produce a term/seminar paper done independently, and present the content of that paper in class. In so doing they will acquaint themselves with the essentials of academic work and presentation technique. This will also lay the foundations for the completion of the MA thesis at a later date.

Forschungsseminar Finanzwirtschaft:

Participants produce a term paper on a topic from finance self-dependently and present their findings in the course of a colloquium. The performance has to suffice the standard of scientific work such that the preconditions for a successful master thesis and further research are guaranteed.

core competencies - Acquisition of self-competency by dealing with a given topic - Acquisition of methodical competency (academic work, presentation techniques,

media skills) - Acquisition of social/communicative competency by chairing discussions and

working in groups

contents

references

Seminar on Financial Economics: Varying topics in the fields of International Financial Markets, Theory of Financial Markets, and Pricing in Derivative Markets. Forschungsseminar Finanzwirtschaft:

Varying topics in the field of finance that deepen the contents of the lectures or cover further areas of finance respectively. media: data projector, black board, flip chart

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E. Overview of the Minor Subjects The following minor subjects can be chosen:

1. Economics

2. Business

3. Comparative Economic Sociology

4. Political Sciences

5. Agricultural Economics

6. Business Information Systems

7. Computer Sciences

8. Empirical Economics

Module descriptions can be found in the module manuals of the providing faculties and subjects.

Currently, Empirical Economics and Economics are the only minor subjects where English as the language of

instruction can be guaranteed.

1. Economics

The student has to take one of the optional modules from optional section economics in the master´s degree

programme Economics (16 ECTS credits):

VWL-WEcon-AppMicr Applied Microeconomics

VWL-WEcon-MacrGro Macroeconomics & Growth

VWL-WEcon-IntEc International Economics

VWL-WEcon-SpatEc Spatial Economics

VWL-WEcon-PubEc Public Economics

VWL-WEcon-EnvREsEc Environmental & Resource Economics

For module descriptions see the module manual of the master´s degree programmes Economics and

Quantitative Economics!

2. Business

The student has to take one of the optional modules from optional section "Spezielle Betriebswirtschaftslehre"

in the master´s degree programme Business (14 ECTS credits) which are usually taught in German language:

BWL-AW Absatzwirtschaft

BWL-CON Controlling

BWL-GUI Gründungs- und Innovationsmanagement

BWL-ORG Organisation

BWL-REWI Rechnungslegung und Wirtschaftsprüfung

BWL-SCM Supply Chain Management

BWL-TM Technologiemanagement

4. Comparative Economic Sociology

Two of the following modules, usually taught in German, are to be taken:

WSF-soz-MA1 Globale soziale Ungleichheit

WSF-soz-MA2 Soziologische Theorie

WSF-soz-MA3 Politsoziologie

WSF-soz-MA4 Mediensoziologie

WSF-soz-MA6 Empirische Sozialforschung

WSF-soz-MA7 Diversity und Gender

The choice of the module is mandatory once you register for the examination.

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5. Political Sciences

One of the following two modules, usually taught in German, has to be taken:

Polw-Master-Economics-1: Regieren in staatlich verfassten Systemen

Polw-Master-Economics-2: Regieren im internationalen System

6. Agricultural Economics

The module Modul-71 is mandatory and either Modul-355 or Modul-258 can be chosen. (Teaching Language

usually is German.)

Modul-71: Modellierung der europäischen Agrarmärkte

Modul-258: Internationaler Handel und EU-Agrarmarktpolitik

Modul-355: Ernährungspolitik

7. Business Information Systems

The module „Wirtschaftsinformatik II für Wirtschaftswissenschaftler“ is mandatory. Addtionally, the module

„Betriebliche Standardsoftware“ or the module „Modellierung von Informationssystemen für

Wirtschaftswissenschaftler“ has to be chosen. (Teaching Language usually is German.)

WInf-WInf2-WW: Wirtschaftsinformatik II für Wirtschaftswissenschaftler

WInf-BetrStan: Betriebliche Standardsoftware

WInf-ModIS-WW: Modellierung von Informationssystemen für Wirtschaftswissenschaftler

8. Computer Sciences

The module "Informationssysteme" is mandatory. Additionally, one of the modules "Fortgeschrittene

Programmierung", "Kommunikationssysteme", or "Softwaretechnik" has to be chosen.

(Teaching Language usually is German.)

Inf-IS: Informationssysteme

Inf-FortProg: Fortgeschrittene Programmierung

Inf-KomSys: Kommunikationssysteme

Inf-SWT: Softwaretechnik

9. Empirical Economics

Two of the following three modules have to be taken:

VWL-PQuEc-Eco2 Econometrics II

VWL-PQuEc-AdvStat2 Advanced Statistics II

VWL-WQuEc-AEM-QF Applied Empirical Methods

For module descriptions see the module manual of the master´s degree programmes Economics and

Quantitative Economics!

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F. Alphabetical Directories

Alphabetical Directory of the Courses

Actuarial mathematics and risk theory ................................................................................................................ 22

Advanced Statistics 1 ............................................................................................................................................ 12

Advanced Topics in Financial Economics ................................................................................................................ 5

Applied Econometrics of Foreign Exchange Markets ............................................................................................. 5

Behavioral Finance ............................................................................................................................................... 10

Computational Finance ........................................................................................................................................ 16

Current Issues in Computational Finance ............................................................................................................. 20

Current Issues in Mathematical Finance .............................................................................................................. 19

Econometrics for Financial Market ...................................................................................................................... 14

Econometrics I ...................................................................................................................................................... 13

Economics of Risk & Uncertainty............................................................................................................................ 5

Foreign Exchange Markets –Theory and Empirics ................................................................................................. 5

Interest Rate Theory ............................................................................................................................................. 25

International Financial Markets ............................................................................................................................. 5

Investments and Capital Markets ......................................................................................................................... 10

Mathematical Finance .......................................................................................................................................... 17

Models with jumps in Mathematical Finance ...................................................................................................... 24

Optimization in Mathematical Finance ................................................................................................................ 23

Partial Differential Equations and Mathematival Finance ................................................................................... 21

Pricing in Derivative Markets ................................................................................................................................. 5

Risk Management ................................................................................................................................................. 18

Seminar on Capital Markets and Corporate Finance ........................................................................................... 28

Seminar on Computational Finance and Mathematical Finance ......................................................................... 26

Seminar on Financial Economics .......................................................................................................................... 28

Seminar on Stochastics and Mathematical Finance ............................................................................................. 27

Statistics for Financial Markets ............................................................................................................................ 14

Theory of Corporate Finance ................................................................................................................................ 10

Theory of Financial Markets ................................................................................................................................... 5

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Alphabetical Directory of the Modules (ordered by module codes)

BWL-QF-FIWI Capital Markets and Corporate Finance ...........................................................................................................10

MNF-math- parfi--QF Partial Differential Equations and Mathematival Finance ................................................................................. 21

MNF-math- prbl_fe-QF Current Issues in Computational Finance .......................................................................................................... 20

MNF-math- probl_fima-QF Current Issues in Mathematical Finance ............................................................................................................ 19

MNF-math- veri-QF Actuarial mathematics and risk theory .............................................................................................................. 22

MNF-math- zimo -QF Interest Rate Theory .......................................................................................................................................... 25

MNF-math-compfin-QF Computational Finance ...................................................................................................................................... 16

MNF-math-finmath1-QF Mathematical Finance ........................................................................................................................................ 17

MNF-math-optpro-QF Optimization in Mathematical Finance .............................................................................................................. 23

MNF-math-riskman-QF Risk Management............................................................................................................................................... 18

MNF-math-sem_ fma _msc-QF Seminar on Stochastics and Mathematical Finance .......................................................................................... 27

MNF-math-sem_cfi_msc-QF Seminar on Computational Finance and Mathematical Finance ....................................................................... 26

MNF-math-sppro-QF Models with jumps in Mathematical Finance .................................................................................................... 24

VWL-PEcon-Eco1 Econometrics 1 ................................................................................................................................................... 13

VWL-PQuEc-AdvStat1 Advanced Statistics 1 ......................................................................................................................................... 12

VWL-QF-EmpMeth Empirical Methods for Finance .......................................................................................................................... 14

VWL-QF-EmpMeth-fm Empirical Methods for Finance .......................................................................................................................... 15

VWL-QF-FinEc Theory of Financial Economics ............................................................................................................................. 5

VWL-QF-Sem Seminar on Financial Economics ........................................................................................................................ 28

of the m. sc. degree programme quantitative finance · 1. structure of curriculum: m.sc....

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