Instructor Name : Education Professor Kwong Koon Shing Email : kskwong@smu.edu.sg Tel : 6828-0834 Office : SOE/SOSS 05-059
COURSE DESCRIPTION
The purpose of this course is to develop knowledge of the fundamental probability theory for quantitatively assessing the uncertain events. The focus in each teaching topic is on the applications of the probability concepts in everyday life. But practical problems encountered in actuarial science and finance are particularly emphasized. Topics include overview of probability, probability distributions, mathematical expectation, some special discrete distributions, some continuous distributions, functions of random variables, sampling distributions, jointly distributed random variables, Limit theorems and stochastic process.
LEARNING OBJECTIVES
The main objective of this course is to teach students probability which can be applied in everyday life or in other disciplines. The features of pedagogical approach used in this course are the followings: Emphasize verbal interpretations of concepts and methodologies; Explain theoretical results in laymans terms with minimum amount of mathematical proofs; Illustrate new concepts with real-life issues in other disciplines, such as economics, business, finance, insurance and actuarial science etc. Specific real-life applications include: o Portfolio theory o Generating random variables and simulation o Utility function and insurance o Risk and insurance o Poisson/exponential modeling applied to real-world phenomena o Log-normal model applied to long-term stock returns o The Black-Scholes option pricing
PREREQUISITE
STAT101 or STAT151
ASSESSMENT METHODS
Class Participation : 10% Assignments : 20% Mid-term Test : 30% Final Examination : 40% Total : 100%
ACADEMIC INTEGRITY
All acts of academic dishonesty (including, but not limited to, plagiarism, cheating, fabrication, facilitation of acts of academic dishonesty by others, unauthorized possession of exam questions, or tampering with the academic work of other students) are serious offences.
School of Economics
Academic Year 2014-15 Term 1
2 All work (whether oral or written) submitted for purposes of assessment must be the students own work. Penalties for violation of the policy range from zero marks for the component assessment to expulsion, depending on the nature of the offense.
When in doubt, students should consult the instructors of the course. Details on the SMU Code of Academic Integrity may be accessed at http://www.smuscd.org/resources.html.
CLASS TIMINGS
Class sessions are of 3-hour duration per week. Each session will involve a lecture and a discussion of assignments and class works.
RECOMMENDED TEXT AND READINGS
Ross, Sheldon, (2014), A First Course in Probability, 9 th edition, Prentice Hall. (If you have 7 th or 8 th
edition textbook, you may use it.) SUPPLEMENTARY TEXT
Hull, John C, (2012), Options, Futures, and Other Derivatives, 8 th edition, Prentice Hall.
WEEKLY LESSON PLAN
This table provides a tentative course schedule which is subject to change. Week Topics Chapter 1 Combinatorial Analysis, Overview of Probability, Conditional Probability and Independence Ch 1 -- Ch 3 2 Practical Applications I Ch 1 Ch 3 3 Discrete Random Variables Ch 4 4 Continuous Random Variables Ch 5 5 Jointly Distributed Random Variables Ch 6 6 Practical Applications II Ch 4 Ch 6 7 Practical Applications III Ch 4 Ch 6 8 RECESS 9 Mid-term test 10 Properties of Expectation