IE 440 Introduction to Financial Engineering
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Financial markets (bonds, stocks, futures, forwards, options, interest rates and their term structures), models of security prices (Brownian motion, geometric Brownian motions, Ornstein-Uhlenbeck processes, Cox-Ross-Rubinstein binomial model, Merton-Black-Scholes model), pricing and hedging financial derivatives (Ito's rule, stochastic integration, diffusion processes, probabilistic solutions of PDEs, no-arbitrage pricing in a complete market of futures, forwards, European and American type options, pricing in incomplete markets), Hedging with futures and options, bond hedging, numerical methods (pricing using trees, Monte-Carlo simulations, finite-difference methods), mean-variance analysis of portfolios, value at risk, optimal consumption and portfolio strategies (formulations and solutions of appropriate dynamic programming models and Hamilton-Jacobi-Bellman equations).
Credit units: 3 ECTS Credit units: 5, Prerequisite:
IE 325.
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