Principles of Financial Engineering

Program Type:

Thesis

Non Thesis

Course Code:

FE 507

P:

3

Lab:

0

Credits:

3

ECTS:

10

Course Language:

English

Course Objectives:

This course brings together a wide range of finance topics with an appropriate "engineering" logic. This course is specifically geared towards graduate students and practitioners in the financial system. The course is aimed to be easy to understand by using simple graphics, basic mathematics and current examples. Discussions about the details of finance theory in the course are partially limited. However, the engineering aspects of these subjects are covered in detail. With this course, students will be able to follow current financial engineering trends and products.

Course Content:

Financial instruments: money markets, bonds, the spot curve, stocks, future markets, options; Arbitrage: static arbitrage, intertemporal arbitrage; Exchanging risk; Portfolio choice; Equilibrium on the stock exchange; Trade and information; Intertemporal valuation. Main issues on static and dynamic optimization, stochastic analysis, statistical expectations and their financial applications.

Teaching Methods:

1: Lecture, 2: Question-Answer, 3: Discussion, 4: Simulation, 5: Case Study

Assessment Methods:

A: Testing, B: Experiment, C: Homework, Q: Quiz

Vertical Tabs

Course Learning Outcomes

Learning Outcomes	Programme Learning Outcomes	Teaching Methods	Assessment Methods


Definition and modeling of analytical models, financial risk factors	1,2,3,5	1,2,3	A, C
Identifying sources of risk, and using it in risk management	1,2,3,5	1,2,3	A, C
Estimating and analyzing financial, credit and operational risks using various risk models	1, 5	1,2,3	A, C
Understanding agreement mechanics, market instruments, syndication processes	1, 5	1,2,3	A, C
Creating syndication structures with cash flow engineering	1, 2, 5	1,2,3	A, C
Understanding the exchange mechanics with forward interest rate swap engineering and establishing swap agreements	1, 2, 5	1,2,3	A, C
Interpretation of hedge ratios and predictions of models	1, 2, 5	1,2,3	A, C
Dynamic replication methods with syndication engineering	1, 2, 5	1,2,3	A, C
Understanding option mechanics and applying options engineering methods	1, 2, 5	1,2,3	A, C
Understanding of convexity positions engineering	1, 2, 5	1,2,3	A, C

Course Flow

COURSE CONTENT
Week	Topics	Study Materials
1	Introduction	Chapter 1
2	Mechanics of Agreements and Syndication Processes	Chapter 2
3	Cash Flow Engineering	Chapter 3
4	Term Interest Rate Barter Engineering	Chapter 4
5	Repo Market Strategies	Chapter 5
6	Cash Flow Engineering in the Foreign Exchange Market	Chapter 6
7	Midterm Exam	Chapter 7
8	Dynamic Replication and Syndication Engineering	Chapter 8
9	Options Engineering, Fixed Income Engineering	Chapter 9
10	Pricing Tools
11	Volatility Engineering, Tools, Trades, and Trading	Chapter 10
12	SMILE Dynamics and Entity Classification	Chapter 11
13	Credit Market: CDS Engineering	Chapter 12
14	Basic Prevention Techniques
15	Final sınavı	All Content

Recommended Sources

RECOMMENDED SOURCES
Textbook			-Principles of Financial Engineering 3rd Edition - November 26, 2014 Authors: Robert Kosowski, Salih Neftci
Additional Resources			Course Notes Course website, lecture notes, financial markets laboratory, financial calculator, online resources, excel type software.

Material Sharing

MATERIAL SHARING
Documents			Guidelines and additional examples for Lecture Topics and Homework Assignments
Assignments			Homework assignments
Exams			Midterm Exam and Final Exam

Assessment

ASSESSMENT
IN-TERM STUDIES	NUMBER	PERCENTAGE
Mid-Term	1	20
Class Performance	1	20
Final Exam	1	60
	Total	100
CONTRIBUTION OF FINAL EXAMINATION TO OVERALL GRADE		60
CONTRIBUTION OF IN-TERM STUDIES TO OVERALL GRADE		20
	Total	100

Course’s Contribution to Program

COURSE'S CONTRIBUTION TO PROGRAMME
No	Program Learning Outcomes	Contribution
No	Program Learning Outcomes	1	2	3	4	5
1	To comprehend the basic principles of finance and to be able to apply these principles in national and international areas.					X
2	To use modern information technologies and current financial tools effectively.				X
3	To comprehend the ethical rules and social responsibility understanding accepted by financial professional organizations and to apply them in the decisions to be taken.		X
4	To have the infrastructure that will enable them to do business in multicultural, multilingual and interdisciplinary environments.			X
5	To have information about the markets and the functioning of the markets and to analyze the developments in these markets.			X
6	To recognize the management tools and models specific to multinational companies and to be able to apply them where necessary.
7	To understand the structure of the global economic system and to analyze how new developments will affect this structure.
8	To be able to use the ability of critical thinking in the decision making process.		X
9	To transfer the acquired leadership, teamwork and communication skills to the lifelong learning process.
10	To be able to manage the process with analytical and creative approaches by anticipating the opportunities and problems that dynamic working conditions may create.

ECTS

ECTS ALLOCATED BASED ON STUDENT WORKLOAD BY THE COURSE DESCRIPTION

Activities	Quantity	Duration (Hour)	Total Workload (Hour)
Course Duration (Including the exam week: 15x Total course hours/week)	16	3	48
Hours for off-the-classroom study (Pre-study, practice, review/week)	16	4	96
Homework	5+1(Proje)	60	60
Mid-term	1	10	20
Final	1	15	30
Total Work Load			254
Total Work Load / 25 (h)			10.16
ECTS Credit of the Course			10

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