Financial Engineering & Risk Management

Aims and Objectives

The objective of this course is to provide the participants with the necessary skills to value and hedge a wide variety of derivatives contracts; and to enable the participants to profitably design and structure such contracts. The course presents a systematic, unified approach to the pricing of derivatives and adopts cutting-edge methods throughout. Continuous-time mathematics is developed and employed as the main tool of analysis.

The course is necessarily quantitative and symbolically oriented, although practical applications are emphasized. Basic ideas from statistics and calculus will be assumed. Some basic knowledge of stochastic processes would be helpful, but not essential: we will develop what we need in class.

Topics Covered

In developing the theory, the course will cover stochastic calculus, the valuation of securities via martingale methods and valuation via partial differential equations, as well as the necessary numerical methods. Applications will include exchange options, quantos, exotics (binaries, barrier options, asian options, lookbacks), interest rate derivatives and credit risk derivatives. We will also discuss the measurement and management of market risk and credit risk, and employ Value-at-Risk.

Who should attend?

This course is suitable for anyone with a relatively strong quantitative background who is seeking an understanding of the structuring, pricing, hedging and use of complex financial instruments. It will primarily be of interest to those students who are engaged in or looking to start careers in sales and trading, quantitative analysis, risk management or structuring, but is also relevant to those who expect to encounter these instruments in a corporate context.

Format and Teaching methods

Lectures

Reading Materials

Course packet

Pre-requisites

The prerequisites for this course are Finance 2 and either Fixed Income Securities or Options and Futures.

Assignments & Assessments