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IEMS 373: Intro to Financial Engineering


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Prerequisites

Civ_Env 205 or ECON corporate Finance, IEMS 302, IEMS 303

Description

This course explores financial markets, market microstructure, derivative securities, risk management,
mathematical models in finance; 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. Course will include 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 sources of financial data and using data for quantitative research
  • 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
  • Obtaining and working with financial data-driven
  • Portfolio construction: risk, return, and arbitrage
  • Forward and futures markets
  • Options markets, random walk and binomial model
  • Lognormal distribution and geometric Brownian motion
  • Black-Scholes-Merton model, dynamic hedging, risk-neutral valuation

MATERIALS

  • Required: Y. Balasanov, Introduction to Financial Engineering, free live e-book available through the author’s website.