Financial Engineering and Risk Management Part I

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Financial Engineering and Risk Management Part I

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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 unde…

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Didn't find what you were looking for? See also: Risk Management, Equities, Engineering, Software / System Engineering, and Governance.

When you enroll for courses through Coursera you get to choose for a paid plan or for a free plan . 

  • Free plan: No certicification and/or audit only. You will have access to all course materials except graded items.
  • Paid plan: Commit to earning a Certificate—it's a trusted, shareable way to showcase your new skills.

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 4.6 stars Average User Rating 4.6See what learners said Coursework

Each course is like an interactive textbook, featuring pre-recorded videos, quizzes and projects.

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Syllabus


WEEK 1


Course Overview
An introduction to the course.


1 video, 2 readings expand


  1. Reading: Course Overview
  2. Reading: About Us
  3. Video: Course Overview


WEEK 2


Introduction to Basic Fixed Income Securities
Review of interest and basic fixed income securities; introduction to arbitrage pricing.


4 videos, 2 readings expand


  1. Reading: Lesson Supplements
  2. Video: Introduction to No-arbitrage
  3. Video: Interest Rates and Fixed Income Instruments
  4. Reading: Lesson Supplements
  5. Video: Floating Rate Bonds and Term Structure of Interest Rates
  6. Video: Forward Contracts

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 expand


  1. Reading: Lesson Supplements
  2. Video: Swaps
  3. Video: Futures
  4. Video: Futures Excel
  5. Reading: Lesson Supplements
  6. Video: Options
  7. Video: Options Pricing
  8. Video: The 1-Period Binomial Model
  9. Video: Option Pricing in the 1-Period Binomial Model

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 expand


  1. Reading: Lesson Supplements
  2. Video: The Multi-Period Binomial Model
  3. Video: What’s Going On?
  4. Video: Pricing American Options
  5. Video: Replicating Strategies
  6. Video: Including Dividends
  7. Video: Pricing Forwards and Futures in the Binomial Model
  8. Video: The Black-Scholes Model
  9. Video: An Example: Pricing a European Put on a Futures Contract
  10. Reading: Quiz Instructions

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 expand


  1. Reading: Lesson Supplements
  2. Video: Introduction to Term Structure Lattice Models
  3. Video: The Cash Account and Pricing Zero-Coupon Bonds
  4. Video: Fixed Income Derivatives: Options on Bonds
  5. Video: Fixed Income Derivatives: Bond Forwards
  6. Video: Fixed Income Derivatives: Bond Futures
  7. Video: Fixed Income Derivatives: Caplets and Floorlets
  8. Video: Fixed Income Derivatives: Swaps and Swaptions
  9. Video: The Forward Equations
  10. Reading: Quiz Instructions

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 expand


  1. Reading: Lesson Supplements
  2. Video: Model Calibration
  3. Video: An Application: Pricing a Payer Swaption in a BDT Model
  4. Video: Fixed Income Derivatives Pricing in Practice
  5. Reading: Lesson Supplements
  6. Video: Modeling Defaultable Bonds
  7. Video: Pricing Defaultable Bonds
  8. Video: Credit Default Swaps
  9. Video: Pricing Credit Default Swaps
  10. Video: Interview with Emmanuel Derman
  11. Reading: Quiz Instructions

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 expand


  1. Reading: Lesson Supplements
  2. Video: Introduction to Mortgage Mathematics and Mortgage-Backed Securities
  3. Video: Prepayment Risk and Mortgage Pass-Throughs
  4. Video: Mortgage Pass-Throughs in Excel
  5. Video: Principal-Only and Interest-Only MBS
  6. Video: Risks of Principal-Only and Interest-Only MBS
  7. Video: Collateralized Mortgage Obligations (CMOs)
  8. Video: Pricing Mortgage-Backed Securities
  9. Reading: Quiz Instructions

Graded: Introduction to Mortgage Mathematics and Mortgage-Backed Securities

WEEK 8


Background Material



10 videos, 1 reading expand


  1. Reading: Lesson Supplements
  2. Video: Review of Basic Probability
  3. Video: Review of Conditional Expectations and Variances
  4. Video: Review of Multivariate Distributions
  5. Video: The Multivariate Normal Distribution
  6. Video: Introduction to Martingales
  7. Video: Introduction to Brownian Motion
  8. Video: Geometric Brownian Motion
  9. Video: Review of Vectors
  10. Video: Review of Matrices
  11. Video: Review of Linear Optimization
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