IND E 599B |
Introduction to Financial Engineering |
| Industrial Engineering | Computational Finance | University of Washington |
This course is a joint offering between the
Industrial Engineering and Computational Finance programs. It is intended as an
introduction to financial decision making over multi-period investments without
uncertainty, single period risky investments, and the use of derivative
securities to manage multi-period stochastic cash flows. This course will be
beneficial for engineers who need a more sophisticated understanding of the
cash flow issues that underlie many engineering/management decisions. Important
concepts will include the term structure of interest rates (a sophisticated
approach to the time value of money), the trade-off between risk and return,
and stochastic discount factors. We
will employ these concepts to understand the basic functions of various
financial markets that exist to help manage uncertain cash flows.
The course will focus on developing both the economic
concepts and mathematical tools needed to make sound decisions in a variety of problems
frequently encountered in practice???. Students should be familiar with basic
concepts in probability, optimization (i.e., Lagrange multipliers), and
discounted cash flows. Undergraduates with this level of preparation are
welcome (for instance, those who have taken IND E 250, 315, and 325). Although helpful, prior knowledge of
Stochastic Processes is not required.
The Official Course
Description
The techniques presented in the
course emphasize the discount rate as a general method of analyzing deterministic
and stochastic cash flows. Topics include the time value of money, present
value, internal rate of return, fixed income securities, duration and bond
portfolio immunization, term structure of interest rates, Fisher-Weill duration
and immunization, capital budgeting, dynamic optimization, investments under
uncertainty, mean-variance portfolio theory, capital asset pricing, options
pricing, forwards, futures, swaps, and hedging risk.
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