İSTANBUL BİLGİ UNIVERSITY, DEPT. OF INDUSTRIAL ENGINEERING. IE 481 Financial Engineering, Fall credits / 6 ECTS Credits

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1 Instructor Information: IE 481 Financial Engineering, Fall credits / 6 ECTS Credits Instructor: Akın Rota Office Location: - akin.rota@jpatr.com Office Phone: Office Hours: Tuesday, 17:00-18:00 Course description: This course examines concepts, tools and methods of financial engineering. Various basic financial instruments will be discussed such as fixed income securities, foreign exchange markets and equities. Various derivative products will be discussed, including forwards, futures, swaps and options. Emphasis will be given to their pricing and they can be used for risk management purposes. In addition, some basic computational techniques for the financial engineering problems using Excel will be implemented. Course objectives: The main objective of this course is to build up the basic knowledge on various financial instruments as well as quantitative models for investment management. Course Learning Outcomes: Upon satisfactory completion of this course, students will: 1. Understand the interest rate mechanism and evaluation criteria 2. Understand the basics of fixed income securities and their pricing mechanisms 3. Understand risk and hedging techniques 4. Understand in the context of the foreign exchange markets how different financial markets work and understand basic derivatives and their pricing mechanisms 5. Understand optimal portfolio allocation and Capital Asset Pricing Model (CAPM) 6. Understand the working principles of the options Prerequisites: MATH 169 and (EC 101 or EC 200 or IE 260) and IE 336 Required text: D. Luenberger: Investment Science, Oxford University Press

2 Additional References: 1. Brealey, Myers : Principles of corporate finance 2. J. Berk, P. De Marzo: Corporate Finance 3. J.Hull: options, Futures and Other derivatives 4. T.J.Linsmeier, N.D. Pearson : An introduction to Value at Risk Bloomberg Market Concepts (BMC) Bloomberg Market Concepts (BMC) is an 8-hour, self-paced e-learning course that provides an interactive introduction to the financial markets. BMC consists of 4 modules - Economics, Currencies, and Equities - woven together from Bloomberg data, news, analytics and television. The course is available through the Bloomberg Professional Service at BMC <GO>. Taking the BMC is optional. However students who take the course and pass it will earn an extra grade of 10%. In order to pass and get a BMC certificate a grade of 70% or better is required. Deadline for BMC certificate is by last day of final exams Bloomberg Professional Service terminals are available in the. One must first sign up as a Bloomberg Professional Service user, which is free. The signup code will be given at the classroom. Upon passing the BMC you will receive a certificate of completion from Bloomberg which can be valuable in your professional career Requirements: Attendance to at least 70% to lectures and classes, is a prerequisite for taking the final exam. 1. Required attendance and tardiness policy will be exercised, and will be part of the final grade evaluation. 2. Excused absences must be documented and is subject to instructor evaluation for legitimacy. 3. Adherence to the University Academic Integrity policy is expected.

3 Exams and Grading: Evaluation Type Number Points (each) Percentage (total) Assignments & Quizzes Midterm Final TOTAL 100 Extra grade: 10% upon Completion of BMC certificate

4 Tentative Lecture Schedule Week # Subject Readings BMC 1. Overview & Concepts of Financial Module Economic Engineering Indicators 2. Time travel Module Economic Chapter 2 Interest rates Indicators 3. Bonds Chapter 3 Module : Roots of Bond Market 4. Risk game- Duration Chapter 3 Bond Valuation Module : Central Bank and İnterest rates Time structure of interest rates - Replicating portfolio Foreign Exchange Markets Derivatives Forwards - Futures - Swaps 8. Midterm exam 9. Risk & return Diversification 10. Markowitz Efficient Frontier 11. CAPM 12. Types, payoff, uses Option strategies 13. Call /put parity Factors affecting option prices, Greeks 14. Binomial pricing, Black & Scholes 15. Final Exam Chapter 4 Chapter 10 Chapter 6 Chapter 6 Chapter 7 Chapter 12 Chapter 12 Chapter 13 Module : Yield curve Movements in yield curve Module Currencies: Currency market mechanics Currency valuation Module Currencies: Central banks & currencies Currency risk Nature of Equities Equity research Absolute valuation Relative valuation

5 ECTS / Workload Table: IE 481 Financial Engineering Activities Number Duration(Hours) Total Workload Theoretical lecture Study time for lectures Assignments Midterm exam Study time for midterm Final exam Study time for final exam Total Workload 154