Course in Financial Engineering and Risk ManagementIndian Institute of Management Calcutta
Price on request
Frequent Asked Questions
FI 248-B (Options, Futures, and Other Derivatives) and FI 217 (Security Analysis and Portfolio Management). Otherwise, you will need my permission. It is expected that you have well absorbed the material studied in earlier finance and statistics classes.
Financial engineering is application of engineering methods to financial economics. It helps a firm design and analyze financial contracts to solve problems and exploit opportunities.
This course studies cases of non-financial firms using financial engineering, especially derivatives (and contracts that look like derivatives) and risk management techniques, to advance strategic goals. This knowledge can help you in many future finance roles like: corporate executive issuing securities and using a wide array of derivative contracts; banker designing, pricing, and trading securities both for own firm as well as for clients; investment manager running an actively managed securities portfolio; and financial regulator overseeing markets, understanding firms' behavior and making sure that no catastrophes happen. While we consider the perspectives of issuer, intermediary, and investor in this course, a special emphasis is given to problems faced by corporate financial managers.
We first review basic derivatives materials. Next, we examine financial risk management, including managing commodity price risk and interest rate risk. We also explore how firms can use derivatives to provide operational flexibility, create incentives, and pursue strategic opportunities. Along the way, we introduce you to widely used Value at Risk (VaR) method of measuring risk and give an example of how a university foundation manages endowment funds.
2. COURSE MATERIAL (RECOMMENDED)
1) Don M. Chance, An Introduction to Derivatives, 4th edition, Dryden, 1998. Good book with nice stories.
2) John C. Hull, Options, Futures, & Other Derivatives, 4th edition, Prentice Hall, 2000. Popular book with practitioners. John Hull is a well respected scholar in the field of derivatives. Used to be the derivatives text for the U.S. Chartered Financial Analyst (CFA) program.
3) Robert A. Jarrow, and Stuart M. Turnbull, Derivative Securities, 2nd edition, South-Western College Publishing, 2000. Does not cover as much variety as Hull but gives a cutting edge presentation of the unified theory of derivatives pricing with careful application to pricing many types of derivatives. Written by two eminent scholars in the field of derivatives.
4) Robert W. Kolb, Futures, Options, and Swaps, 3rd edition, Blackwell Publishers, 1999. User-friendly, not very rigorous. Kolb has also added many things in 3rd edition. CFA derivatives text.
5) Financial newspapers and magazines.
3. EXAMS AND GRADING
Class participation 100 points or 10%
5 Case write-ups 500 points (100 points each) or 50%
Final exam 400 points or 40%
Course Grade 1,000 points or 100%