Financial Engineering and Risk Management Part II (Coursera)

Financial Engineering and Risk Management Part II (Coursera)
Financial Engineering is a multidisciplinary field involving finance and economics, mathematics, statistics, engineering and computational methods. The emphasis of FE & RM Part II will be on the use of simple stochastic models to (i) solve portfolio optimization problems (ii) price derivative securities in various asset classes including equities and credit and (iii) consider some advanced applications of financial engineering including algorithmic trading and the pricing of real options. We will also consider the role that financial engineering played during the financial crisis.


A newer version of this course is available here:
Introduction to Financial Engineering and Risk Management


We hope that students who complete the course and the prerequisite course (FE & RM Part I) will have a good understanding of 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.


Syllabus


WEEK 1

Mean-Variance Analysis and CAPM

Problem formulation and solution; the efficient frontier; including the risk-free asset; the Capital Asset Pricing Model (CAPM);implications of CAPM: α, β, security and capital market lines


WEEK 2

Practical Issues in Implementing Mean Variance

Problems with mean-variance analysis; ETFs and leveraged ETFs; VaR and CVaR for asset allocation; survivorship bias, performance evaluation and other statistical pitfalls.


WEEK 3

Equity Derivatives in Practice: Part I

Problems with mean-variance analysis; ETFs and leveraged ETFs; VaR and CVaR for asset allocation; survivorship bias, performance evaluation and other statistical pitfalls.


WEEK 4

Equity Derivatives in Practice: Part II

More about Black-Scholes, the Greeks and delta-hedging; the volatility surface; pricing derivatives using the volatility surface; model calibration.


WEEK 5

Credit Derivatives and Structured Products

Mechanics and pricing of CDOs; exotic structured credit securities including CDO-squared’s and CDO-cubed’s. Risk management of these products and their role in the financial crisis.


WEEK 6

Other Applications of Financial Engineering

Real options; energy and commodities modeling; algorithmic trading.


WEEK 7

Background Material