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2013 FE Courseoutline Iims Final1

This document outlines the course details for Financial Engineering at Indian Institute of Management Shillong. The objective of the course is to introduce techniques for pricing derivatives and their practical applications. The course will use case studies to examine how firms use financial engineering to reduce costs, manage risk exposures, and compete. Assessment will include quizzes, case analysis, a term paper, and an end of term exam. Pedagogy will involve case-based lectures, class discussions, and student presentations. Key topics will include forwards, futures, swaps, options, volatility models like GARCH and ARCH, and value at risk.

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101 views

2013 FE Courseoutline Iims Final1

This document outlines the course details for Financial Engineering at Indian Institute of Management Shillong. The objective of the course is to introduce techniques for pricing derivatives and their practical applications. The course will use case studies to examine how firms use financial engineering to reduce costs, manage risk exposures, and compete. Assessment will include quizzes, case analysis, a term paper, and an end of term exam. Pedagogy will involve case-based lectures, class discussions, and student presentations. Key topics will include forwards, futures, swaps, options, volatility models like GARCH and ARCH, and value at risk.

Uploaded by

AbhinitMahto
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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INDIAN INSTITUTE OF MANAGEMENT SHILLONG

Financial Engineering

PGP II (2013) Course Outline


Instructor: Dr. Naliniprava Tripathy
Term: V
Credits: One
Prerequisite: Quantitative Finance, Basic Mathematics & Statistics
Email: [email protected]/[email protected]
Intercom: 8037
Objective
Financial Engineering is today changing the practice of finance.
Financial-service firms have begun to use financial engineering as a
basis of competition. Corporate financial managers also use financial
engineering to advance shareholder value. The companies can use one
type of financial engineering derivatives as part of their financial
programs. Through case studies, we will study in detail how financial
engineering is used in the firms to reduce their costs of financing, to
alter their fundamental risk exposures, and new ways to compete. The
objective of this course is to introduce the techniques used for pricing
various types of derivatives and their practical application. The course
is quantitative in nature and mathematical preparation is required.
The course is highly accessible to any student who understands basic
mathematics and Statistics and is willing to work hard. The course is
designed assuming that the participant is familiar with the contents of
the Quantitative Finance course.
Grading
Surprise quizzes: 20%
Case analysis presentation, class participation and assignment: 20%
Term paper: 20%
End theme exam: 40%
Prescribed
Textbooks:
1.Options,
Futures,
And
Other
Derivatives by John Hull, Prentice hall, 2009
2. Risk Management & Derivative by Rene M.Stulz,Thomson South-western,2007
3. Derivatives: An Introduction by Robert A. Strong, Thomson South western, 2006
4. Derivatives markets by Robert McDonald, Addison Wesley
5. Derivatives-Markets, Valuation, and Risk Management, John Wiley &
Sons, Inc.2006
Supplementary Reading Material
The supplementary reading material including cases, technical notes,
and research articles is made available for students.
Pedagogy
The pedagogy to be followed will be completely based on the students
follow up. It will be mix of case based lecture, class discussion, and
students presentation. The majority of the learning will happen off the
classroom, and the classroom sessions will be used for discussing what

has been learnt outside the classroom. Very heavy importance will be
given for students preparation for the sessions. Most of the sessions
will be based on case, which has to be first tried / discussed by the
students as a group on their own. The Facilitators effort will be focused
in providing a learning environment for the student rather than spoon
feeding the student.
Case analysis
Cases are to be discussed in class. A case brief by each group has to
be prepared. The groups are expected to come prepared with their own
workings in excel sheet kept ready for presentation. A concise, wellorganized, insightful analysis is expected.
A suggested organization of a case brief: (1) details of background
knowledge required for solving the case - one page (2) case back
ground half page (3) various levels of problem identified in the case
one page (4) details of your analysis and your interpretations 2 pages
(5) specific recommendations and implementation one page (5) final
conclusion half page. In case solving, you are expected to apply the
tools and principles as well as all your other skills, to decide how to
resolve the problem identified in the case. You can use necessary
assumptions in solving the case. Each group is expected to come with
ppt presentation if cases given. The presentation should cover
understanding of the problems, analysis (show the worksheet),
comments and conclusions. Any one of the randomly called member of
the group will be asked to make presentation. The presentation and
case discussion mark (for the group) will be provided only on the
performance of the member who presents it. The case analysis will be
evaluated at group level and also at individual level (eligibility level).
The group level valuation will be on the case brief (word file, excel file,
ppt file) submitted through public folder. While submitting the case
brief all the groups are expected to list out the names of the students,
who have significantly contributed for the case analysis and
preparation of case brief. If the names and roll No.s are not listed, it
will be assumed that the person who has submitted the case is the
only contributor (a group cannot submit multiple times). The groups
are expected to be more genuine in listing out the names. The
students, whose names are not found in the list provided by the group
can neither take up this individual evaluation .
Surprise quizzes and end term exam
Surprise quizzes will be given periodically throughout the course. The
average grades of all the surprise quizzes will be considered for
grading. The question pattern for quizzes will be any or all of; multiple
choice, fill in the blanks, true or false, very short descriptive. All the
quizzes are closed book and it covers pre reads, self learning topics,
class room discussions and case analysis. There will not be more than
20 questions to be answered in 10 minutes. A comprehensive end
theme exam will be given at the end of the course. The end theme

exam pattern will be any or all of; integrated exercises, mini cases,
listing out your opinions in contradiction to established theories and
models. It covers topics covered in all the sessions, whole text book,
try yourself exercises, and from class room discussions.
Term Paper
The content of the term paper includes (1) conceptual frame work, (2)
review of past studies (3) research framework (4) empirical analysis (5)
findings and conclusion. The conceptual frame work includes statistical
and contemporary details on the topic. The students are expected to
refer sufficient number of (I generally recommend 20 more relevant
research work) research articles. All the articles should be of research
articles published after Jan 2000 from outstanding journals. The thirty
percent of the research papers should be from Indian context and
others from international context. They are also expected to write a
paragraph (not less than 10 lines) on each of the article referred. The
research design includes focus area, problem over view, study
objectives, research methodology, data to be used, data types and
sources, sampling methods, study period, details of statistical tools,
scope of the study, and the limitations of the study. The students
should be able to manage to collect the data, collect and understand
research articles, design statistical models, and make analysis. In the
analysis part the students are expected to use required number of
multivariate statistical tools for the purpose of analysis. More than 90
percent of the effort should be towards empirical analysis and testing
various established models. The quality and the reliability of the paper
will be measured on the sufficient number of references made from the
research articles, cases, technical articles, and standard text books.
The students are expected to meet the facilitator and get his feed back
for improving the report. The paper writing may demand you to spend
more time in typing, formatting and redrafting (many times students
have a misunderstanding that typing and formatting a report does not
add any value in learning). The students are expected submit the data
used, spreadsheet and copy of supporting articles along with the final
draft.
Sessions 1
Introduction to Financial Engineering & the Rational for financial Risk
management, Introduction to financial derivatives ((Reading:
Chapter 3, page-51-72 Stulz)
HBR Article: Introduction to Corporate Financial Engineering
Sessions 2-3
Mechanics of Forward Market & Forward Rate Agreement, Chapter-2,
page28-54 & page98-104(John C.Hull)
HBR Note: Note on Forward Contract and Swap
Sessions 4-5-6

Valuing Futures Contracts and Application of Futures, Interest Rate


Futures, Stock Index Futures, Futures vs. Forwards Chapter-5&6,
(John C.Hull)
HBR Note: Forward &Futures
Case: announced letter
Sessions 7-8
Introduction to Swaps and Application of Swaps, Chapter-7, (John
C.Hull)
Case: announced letter
Sessions 9-10-11
Mechanics of Option Markets and Trading Strategies Chapter-9,
Chapter-11, (John C.Hull)
HBR Note: Option Contract and their valuations
Case: announced letter
Sessions 12-13
Option Valuation Models-Black Schools Model Chapter- 14 (John
C.Hull)
HBR Note: The Black-Sholes option-Pricing Model
Sessions 14-15
Option Hedging Strategies Chapter- 18 (John C.Hull)
Case: announced letter
Sessions 16
Volatility Model-GARCH, ARCH Chapter- 22 (John C.Hull)
Research paper: GARCH &ARCH Model
Sessions 17-18
Value at Risk Chapter- 21 (John C.Hull)
Case: Understanding Corporate-Value-at-Risk through a
comprehensive and Simple Example
Sessions 18-20
Term Paper Presentation

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