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5. Derivatives: Economic Concepts (2 units)
This course covers the use and pricing of derivatives - from the basic features of futures and options, to binomial and trinomial option pricing and the Black-Scholes formula, to implied binomial trees, to volatility measurement, and to dynamic trading strategies and extensions to a wide variety of exotic options. It emphasizes economic intuition and understanding over detailed quantitative analysis. Imp
Wharton syllabus 2008: courses/CourseDesc/financial-engineering-syllabus-spring08.pdf
Wharton syllabus 2007:
Textbook:Derivatives Markets (2nd edition), by Robert L McDonald.
Accompany Website£ºaw_mcdonald_derivmkt_2/
faculty/mcdonald/htm/typos1e.html
English edition book download (in 3 parts):
UploadFile_20082009/2007-11/200711910462138566.pdf
UploadFile_20082009/2007-11/20071191050314535.pdf
UploadFile_20082009/2007-11/200711910533549072.pdf
PPT download:
UploadFile_20082009/2008-2/200822315523336270.rar
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As an additional reference, I also recommend: Options, Futures and Other Derivatives (6th edition), by John C Hull
Course outline
? Introduction
? Financial forwards
? Financial futures
? Commodity forwards/futures
? Hedging with forwards/futures
? Swaps
? Options: basics
? American options
? Pricing options, I: binomial trees
? Pricing options, II: models of stock returns
? Option Greeks
? Additional topics as time permits:
¨C limits of Black-Scholes
¨C corporate securities
¨C real options
¨C more derivative pricing
6. Derivatives: Quantitative Methods (2 units) - Domingo Tavella
This course emphasizes the pricing of derivatives in continuous time, from the formulation of the pricing problem to the implementation of computational and numerical solution techniques. The course consists of three parts. In the first part, asset pricing theory is used to set up the pricing problem for a wide range of instruments with features such as early exercise, jumps, and path dependencies. The second part focuses on simulation methods for pricing both European and early exercise derivatives. The third part shows how to effectively use advanced finite difference techniques for solving a wide array of pricing problems.
7. Fixed Income Markets (2 units) - Francis Longstaff
This course provides a quantitative approach to fixed income securities and bond portfolio management. The focus is on fixed income security markets, pricing and uses for portfolio management or for hedging interest rate risk. The course covers bond mathematics, term structure measurement and theory, immunization techniques and the modern theory of bond pricing, including the pricing of credit-risky bonds. It also covers derivative instruments (futures, swaps, options, exotic instruments). There will be extensive use of application and programming exercises.
Wharton syllabus£º
Reference: Frank J. Fabozzi, editor. 2005. The Handbook of Fixed Income Securities,
Seventh Edition. McGraw-Hill. New York, New York
Choose 1 unit of electives:
Accounting and Taxation of Derivatives (1 unit) - Suneel Udpa
The course provides a framework to allow students the understanding of the accounting and tax issues related to derivatives and hedging. It also fulfills the needs of students seeking jobs in the corporate sector and/or seeking securities structuring assignments in the financial services sector. A basic understanding of financial accounting is required.
Credit Risk: Economic Concepts (1 unit) - Jeffrey Bohn
This first of two 1-unit courses will focus on the conceptual foundations of credit risk modeling and a discussion of how the models are used in practice. Students will gain familiarity with the model frameworks, vocabulary, and model implementation challenges. Students will gain exposure to the practical challenges associated with building, testing, and using credit risk models currently used by banks and asset managers.
Financial Institutions Seminar II
This is a weekly seminar in which informed observers and practitioners discuss trends in the provision of financial services, the information and computing systems being adopted, new product developments, regulatory issues, and similar topics.
Required Course:
Financial Risk Measurement and Management (2 units) - Philippe Jorion
This course examines financial risk measurement and management, including market risk, credit risk, liquidity risk, settlement risk, model risk, volatility risk, kurtosis risk and other types of financial risks. It includes risk measurement techniques for different types of contracts and portfolios (equity, fixed income, currency) such as duration, portfolio Beta, factor sensitivities, Value at Risk?, dynamic portfolio distribution analysis and extreme value analysis. It also includes risk management techniques for different types of problems such as trading desk risk management, total portfolio market exposure limits, counterpart credit exposure limits, and funding liquidity exposure limits.
Choose 5 units of electives:
Advanced Computational Finance (2 units) - Domingo Tavella
This course builds on the techniques learned in Quantitative Methods for Derivative Pricing. The focus of the course is a deeper analysis of numerical and computational issues in pricing and calibration. The orientation of the course is hands-on, with heavy use of computational techniques applied to case projects. Classroom activity will combine lectures with detailed discussion of case projects. The primary objective of this course is to prepare students to tackle the latest challenges in quantitative pricing that they are likely to encounter in cutting edge financial institutions. The material presented will familiarize students with state of the art computational strategies for the calibration of pricing frameworks, and for the pricing of complex and multidimensional derivatives. The course will be based on case projects, representative of real life situations as encountered in top trading operations in equities and fixed income. Some of the topics of emphasis will include implying local volatility functions, understanding the role of stochastic volatility models, pricing structures with complex embedded options, and credit derivatives.
NOTE: A minimum grade of A- in the prerequisite courseDerivatives: Quantitative Methods ( 3 units ) is required to enroll in this elective
Success and Failure in Financial Innovation (1 unit) - John O'Brien
Students will participate in a series of case studies illustrating some of the major successes and failures of modern financial innovation.
The Design of Securities for Corporate Financing (1 unit) - Mukesh Bajaj
The view of corporate finance presented in this course stems from an analysis of two related issues: 1) how firms create value, and 2) how corporate finance facilitates the process of value creation. As part of this process, we will examine the factors that help determine financial strategy, thereby putting the design of financial packages in perspective. In particular, the course focuses on how corporate financing needs lead to the need for financial engineering and spur financial innovation. The course will use lectures and case analysis.
Credit Risk: Quantitative Modeling (1 unit) - Jeffrey Bohn
The second course in the credit risk series, this course will build on the foundation provided in the first course and provide a more in-depth presentation of how models are derived, estimated, and modified. This course is targeted toward students with strong backgrounds in mathematics and statistics. The course will cover default probabilities, loss given default, correlation, credit portfolio analytics, bond valuation, loan valuation, and credit derivative valuation. Emphasis will be placed on model building, model validation, and interpreting model output. Students will be required to do some high-level programming in a package such as Matlab. Some empirical testing exercises will also be part of the project work. The second course in the credit risk series, this course will build on this foundation and provide a more in-depth presentation of how models are derived, estimated, and modified.
Equity & Currency Markets (2 units) - Richard Lyons and Ron Kahn
This course reviews various aspects of equity and currency markets and provides models of and historical evidence on the average returns and volatility of returns on equities, on the trade-to-trade equity price beha
Choose 7 units of coursework:
Asset-backed Security Markets (2 units) - Nancy Wallace and Dwight Jaffee
This course extends the study of fixed-income securities to advanced topics on mortgage and other asset-backed securities. Students will apply the latest tools in fixed-income analysis and classic models in economics and finance to a critical evaluation of the structure and operation of the securitized bond markets. The course covers the basic mechanics of structuring deals for mortgage-related securities, credit cards, leases, and other debt markets and the risk management techniques employed in the securitization process for these assets. The course will also consider the valuation of pooled assets and derivative bonds using both Monte Carlo and option pricing techniques, an analysis of the trading strategies that are employed in these markets, and a study of the market microstructure of asset-backed security markets.
Dynamic Asset Management (2 units) - Hayne Leland
This course reviews portfolio theory and pricing models, risk models for international portfolio returns, models of optimal allocation of funds, role of exchange rate uncertainty, and criteria for judging the performance of managers and models. It includes different types of portfolios/instruments (equity, fixed income, currency, mortgages, non-traded assets) and different types of applications (investment funds, pension funds, insurance companies, bank investment portfolios, etc.). This course examines how strategies that systematically change exposure to different assets can achieve various investment objectives.
Behavioral Finance (2 units) - Terry Odean
Over the last 25 years, psychologists have come to better understand the processes by which people make judgments and decisions. They have identified common judgment and decision heuristics and the biases associated with these. An understanding of on
Advanced Corporate Finance (and Real Options) (2 units) - Christopher Hennessy
Investment
Textbook suggested: Investments, 7th Edition, by Bodie, Kane and Marcus, Irwin, 2006
business/finance/bkm/index.html
On
lecture notes: john.cochrane/research/Papers/notes.pdf
Applied Finance Project (Required) (1 - 3 units)
This is an applied project exploring an unresolved finance problem that is met in practice and involves the development or use of a quantitative financial technique. Participation requires prior approval of the supervising faculty member.
Independent Study (1 - 3 units) - Richard Stanton and Nancy Wallace
The MFE program requires satisfactory completion of 28 units of coursework. In addition to coursework, the MFE educational experience includes the following:
Financial Practice Seminars: MFE students are encouraged to attend weekly discussions held by finance practitioners. In the first term speakers discuss jobs available to graduates of the MFE and the skills needed to contribute to a firm's mission. In the second term, speakers provide insights into the way the financial world is changing: new products and needs; evolving da
Applied Finance Project: MFE students are required to complete an applied finance project that develops or uses quantitative finance tools and techniques learned in the program or internship.