1-1 Course Overview1-2 introduction to no-arbitrage1-3 introduction to no-arbitrage1-4Floating rate bonds and term structure ...2-1 Swaps2-2 Futures2-3 Futures Excel2-4 Options2-5 Options Pricing2-6 The 1-Period Binomial Model2-7 Option Pricing in the 1-Period Binomial Model3-1 The Multi-Period Binomial Model3-2 What’s Going On?3-3Pricing American Options3-4Replicating Strategies Binomial Model3-5Including Dividends3-6Pricing Forwards Futures In the Binomial Model3-7The Black Scholes Model3-8Pricing a European Put on a Futures Contract4-1 Introduction to Term Structure Lattice Models4-2 The Cash Account and Pricing Zero-Coupon Bonds4-3 Fixed Income Derivatives_Options on Bonds4-4 Fixed Income Derivatives_Bond Forwards4-5 Fixed Income Derivatives_Bond Futures4-6 Fixed Income Derivatives_Caplets and Floorlets4-7 Fixed Income Derivatives_Swaps and Swaptions4-8 The Forward Equations5-1 Model Calibration5-2 An Application_Pricing a Payer Swaption in a BDT Model5-3 Fixed Income Derivatives Pricing in Practice5-4 Modeling Defaultable Bonds5-5 Pricing Defaultable Bonds5-6 Credit Default Swaps5-7 Pricing Credit Default Swaps5-8 Completed Interview with Emmanuel Derman6-1 Introduction to Mortgage Mathematics and...6-2 Prepayment Risk and Mortgage Pass-Throughs6-3 Mortgage Pass-Throughs in Excel6-4 Principal-Only and Interest-Only MBS6-5 Risks of Principal-Only and Interest-Only MBS6-7 Pricing Mortgage-Backed-Securities

This course follows on from FE & RM Part I. We will consider portfolio optimization, risk management and some advanced examples of derivatives pricing that draw from structured credit, real options and energy derivatives. We will also cast a critical eye on how financial models are used in practice.

About the Course

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.

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.