BIRLA INSTITUTE OF TECHONOLOGY AND SCIENCE, PILANI Pilani Campus

INSTRUCTION DIVISION FIRST SEMESTER 2012-13 Course Handout Part II Date: 02/08/2013 In addition to Part-I (General Handout for all courses appended to the timetable) this portion gives further specific details regarding the course. Course No. : EA 475/ECON C413/MBA C 475/BITS F449 Course Title : FINANCIAL ENGINEERING Instructor-in-charge : ARUN KUMAR VAISH 1. Scop ! O"# c$%& : The objective of the course is to provide knowledge about preliminary understanding of financial engineering tools and techniques in the present market environment such as applications of Future & Options for hedging, asset price dynamics and use of simulation in decision making. Financial ngineering is a multidisciplinary field involving financial theory, the methods of engineering, the tools of mathematics and the practice of programming. The Financial ngineering !oncentration encompasses the design, analysis, and construction of financial contracts to meet the needs of enterprises. "t involves the development and creative application of financial theory and financial instruments to structure solutions to comple# financial problems and to e#ploit financial opportunities. The course on financial engineering would enables students to respond to the professional requirements particularly related to investment banking, financial management, treasury operations, asset management, risk management, consulting and capital markets etc. $. T '$ "oo(: T%. &alih '. 'eftci, (rinciples of Financial ngineering, )cademic (ress (ublishers, *++, -. R ) * +c "oo(,: .%. /avid ). /ubrofsky and Thomos 0. 1iller, 2r., /eivatives 3aluation and .isk 1anagement, O#ford 4nversity (ress. .*. /avid 5. 6uenberger, "nvestment &cience, O#ford 4niversity (ress .$. Futures, Options and Other /erivatives by 2ohn ! 7ull, 8th dition

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"ntroduction to financial /efinition of financial engineering engineering, its tools and techniques etc. "ntroduction to financial players and 1arkets, players, markets and instruments and related orders, deals and conventions. settlement. "ntroduction securities. to fi#ed

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income !oncept of interest rates & term9 !lass notes structure. <onds basics and dynamics of bond price, /uration & 1odified /uration, yield9maturity9 price relationship.

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<asics of derivatives. /etermination <asics of Futures, forwards, options !lass notes of Forwards and Futures prices, & swaps and their pay9off. 4nderstanding synthetics and their pricing, forwards, futures and the mechanics of simple interest rate derivatives. !ontracts9future & forwards, !hap $9- of T%:.$ &ynthetics, pricing, 6ibor & other : class notes benchmark interest rates, forward interest rates & F.)s .

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<asics of swaps and their different &waps, types & mechanics of swap. !hap = & %$ of Framework for swaps, term T%:.%: .$ : class types and uses. structure modeling and dynamics notes 6earning about creation of synthetics )d9hoc &ynthetics, (rinciples of !hap 8 of T%: class dynamic .eplication and important notes by dynamic replication methods. conditions 6earning conve#ity of bond and <ond conve#ity trades and sources of !hap , of T%: class yield volatility. conve#ity notes Options (ricing, Option mechanics, 3aluation of Options, Options !hap >&%+ of T%, : options engineering and its pricing using <lack9&choles and .$ plus class notes <inomial model. 5reeks and their application. uses. Options strategies. 3olatility swaps, &miles and 3olatility positions, smile effects !hap %$9%= of T% :

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BIRLA INSTITUTE OF TECHONOLOGY AND SCIENCE, PILANI Pilani Campus

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39a9., 6earning Tools of financial 4nderstanding 3ale at .isk and the !hapter %%&%* engineering in pricing and 1onte !arlo approach for application of fundamental theorems simulation, calibration and ?uantos

6. Evaluation Component S. No. 1 2 3 Evaluation Component Mid-Semester Examination Surprise Quizzes Case Study /Article Presentations Or Project Comprehensive Examination Duration Max. Marks 30 20 10 Date & Time 28/9 10:00 - 11:30 AM Remarks OB CB

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