IE59000 - Financial EngineeringSummer 2016
Days/Time: TBA / TBA
Credit Hours: 3
The combination of financial theory, mathematics, and computer technology has led to the emergence of a new profession: Financial Engineering. Financial Engineers apply advanced mathematical methods and computer technology to financial markets and financial management.
This course provides methods to manage risk in engineering and corporate settings as well as in financial markets. Originally, Financial Engineering referred to the creation of new securities of financial instruments either by unbundling - breaking up and allocating the cash flows from one security to create several new securities- or by bundling - combining more than one security into a composite security. Such creative engineering of new investment products allows one to design securities with custom-tailored risk attributes. Currently, Financial Engineering is usually defined as the design, development, and implementation of innovative interest rates, equities, and commodities for trading, investment, hedging, and risk management.
1. Portfolio Theory + Relevant material from Multi-Objective Optimization
2. Capital Asset Pricing Model (CAPM)
3. Factor Models & Arbitrage Pricing Theory
4. Theory of Capital & Various Interest Rates
5. Utility Theory and Risk Aversion
6. Forwards, Futures, & Swaps
8. Option Pricing Theory: Binomial Lattice Model & Black-Scholes Equation
This is an INTRODUCTORY level course. Therefore, all the mathematics and finance you should need for the class will be covered in class ??? only some background in familiarity with calculus and engineering economics is required.
Syllabus, grades, lecture notes, homework assignments and a message board.
Regular written homework, as well as extra credit assignments emphasizing and extending lecture material, will be assigned. To be submitted via Blackboard. Homework will account for 1/3 of your grade.
Teams of three to six students will select (or be assigned) a specific topic. The project requirements include a 10-20 page (not including appendices) paper to be written in technical journal format plus possibly a 10-15 minute class presentation. The project accounts for 1/3 of your final grade.
One midterm exam which will account for 1/3 of the grade.
David G. Luenberger, "Investment Science", Oxford University Press, New York, 1997, ISBN 0195108094 (Any edition is fine). Disclaimer: final textbook listings are available in April for fall and summer semesters. Please visit the Listing of Textbooks by College or School for the most up-to-date information.
ProEd Minimum Computer Requirements.
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