Course Schedule and Catalog

Long Title: BASIC FINANCIAL ENGINEERING

Department: Economics

Grade Mode: Standard Letter

Course Type: Lecture

Credit Hours: 5

Description: Financial engineers design and analyze products that improve the efficiency of markets and create mechanisms for reducing risk. This course introduces the basics of financial engineering: the notions of arbitrage and risk-neutral probability measure are developed in the case of discrete models; Black-Scholes theory is introduced in continuous-time models, and interest rate derivatives and the term structure of interest rates are discussed. Stochastic processes, Ito calculus and diffusion models are used as basic analytical tools. Statistical methodologies to estimate and test the models commonly used in finance and financial engineering are also introduced. Graduate/Undergraduate Equivalency: ECON 449.