About this course: Financial Engineering is a multidisciplinary field drawing from finance and economics, mathematics, statistics, engineering and computational methods. The emphasis of FE & RM Part I will be on the use of simple stochastic models to price derivative securities in various asset classes including equities, fixed income, credit and mortgage-backed securities. We will also consider the role that some of these asset classes played during the financial crisis. A notable feature of this course will be an interview module with Emanuel Derman, the renowned ``quant'' and best-selling author of "My Life as a Quant". We hope that students who complete the course will begin to understand the "rocket science" behind financial engineering but perhaps more importantly, we hope they will also understand the limitations of this theory in practice and why financial models should always be treated with a healthy degree of skepticism. The follow-on course FE & RM Part II will continue to develop derivatives pricing models but it will also focus on asset allocation and portfolio optimization as well as other applications of financial engineering such as real options, commodity and energy derivatives and algorithmic trading.
Created by: Columbia University
Taught by: Martin Haugh, Co-Director, Center for Financial Engineering
Industrial Engineering & Operations Research
Taught by: Garud Iyengar, Professor
Industrial Engineering and Operations Research Department
| Commitment | 12 hours videos and quizzes |
| Language | English |
| How To Pass | Pass all graded assignments to complete the course. |
| User Ratings |
Syllabus
WEEK 1
Course Overview
An introduction to the course.
1 video, 2 readings
WEEK 2
Introduction to Basic Fixed Income Securities
Review of interest and basic fixed income securities; introduction to arbitrage pricing.
4 videos, 2 readings
Graded: Introduction to Basic Fixed Income Securities
WEEK 3
Introduction to Derivative Securities
The mechanics of forwards, futures, swaps and options. Option pricing in the 1-period binomial model.
7 videos, 2 readings
Graded: Introduction to Derivative Securities
WEEK 4
Option Pricing in the Multi-Period Binomial Model
Derivatives pricing in the binomial model including European and American options; handling dividends; pricing forwards and futures; convergence of the binomial model to Black-Scholes.
8 videos, 2 readings
Graded: Option Pricing in the Multi-Period Binomial Model
WEEK 5
Term Structure Models I
Binomial lattice models of the short-rate; pricing fixed income derivative securities including caps, floors swaps and swaptions; the forward equations and elementary securities.
8 videos, 2 readings
Graded: Term Structure Models I
WEEK 6
Term Structure Models II and Introduction to Credit Derivatives
Calibration of term-structure models; the Black-Derman-Toy and Ho-Lee models. Limitations of term-structure models and derivatives pricing models in general. Introduction to credit-default swaps (CDS) and the pricing of CDS and defaultable bonds.
8 videos, 3 readings
Graded: Term Structure Models II and Introduction to Credit Derivatives
WEEK 7
Introduction to Mortgage Mathematics and Mortgage-Backed Securities
Basic mortgage mathematics; mechanics of mortgage-backed securities (MBS) including pass-throughs, principal-only and interest-only securities, and CMOs; pricing of MBS; MBS and the financial crisis.
7 videos, 2 readings
Graded: Introduction to Mortgage Mathematics and Mortgage-Backed Securities
WEEK 8
Background Material
10 videos, 1 reading
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Ratings and Reviews
Excellent Course. Well timed
Very helpfuly!
Very Good and instructive. The Excel sheets are good to have as tools.
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sm
it has helped me getting a feel of underlying mathematical models.