Courses
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Descriptions
IEMS 373: Introduction to Financial Engineering

Quarter Offered

Winter : TTh 2:00-3:20pm ; Linetsky

Prerequisites

IEMS 326 (Civ_Env 205) or ECON corporate Finance, IEMS 202, IEMS 303

Description

Financial markets, derivative securities, risk management, mathematical models in finance.  Foreign exchange, debt equity, commodity markets. Investing, trading, hedging arbitrage.  Forwards, futures, options, swaps, exotic derivatives. Models of price dynamics, binomial model, introduction to Black-Scholes theory and Monte Carlo simulation. Homework, projects, and guest speakers.

  • This course is an IE/OR elective for Industrial Engineering.

LEARNING OBJECTIVES

  • Students will acquire understanding of the purpose, structure and functioning of financial markets
  • Students will acquire knowledge of major asset classes
  • Students will be able to analyze hedging transactions with forward and futures contracts  
  • Students will be able to price and hedge options in the binomial model
  • Students will be able to estimate volatility of financial asset returns from historical data
  • Students will be able to price and hedge options in the Black-Scholes-Merton model  

 TOPICS

  • Introduction to financial markets
  • Forward and futures markets
  • Options markets
  • Binomial random walk and binomial model
  • Lognormal distribution and geometric Brownian motion
  • Black-Scholes-Merton model
  • Dynamic hedging
  • Risk-neutral valuation
  • Risk management

MATERIALS

Recommended: Options, Futures and other Derivatives, 9th Ed., J. Hull