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IEMS 373: Intro to Financial Engineering


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Prerequisites

IEMS 326 (Civ_Env 205) or ECON corporate Finance, IEMS 302, IEMS 303

Description

This course explores 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. 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 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

  • Required: John Hull, Options, Futures, and Other Derivatives, 11th Edition (ISBN-13: 978-0-13-693997-9), Pearson. Older editions (10th and 9th) are acceptable for students.
  • Harvard Business School Cases (approximately $17)