NEW COURSE: IE 490 FINANCIAL ENGINEERING

For Undergraduate & Graduate Students*

1. SYLLABUS
IE 545: Engineering Economic Analysis
Fall 2019
MWF 02:30 – 03:20pm
BRWN 1154
Professor Thomas L. Morin TA Marina Sala de Medeiros
(mmedeir@purdue.edu)

Office: Grissom 343

Phone: (765) 494-5418
E-mail: tmorin1@aol.com
Office Hours: by appointment To be defined

TEXTBOOK: Investment Science, David G. Luenberger, Oxford University Press,

New York, 2nd Edition.
RECOMMENDED SUPPLEMENTAL: Investments, Bodie, Kane & Marcus.
Topic Textbook Chapter(s)
1. Portfolio Theory + Relevant material from 6 + notes
Multi-Objective Optimization

2 Capital Asset Pricing Model (CAPM) 7

3. Factor Models & Arbitrage Pricing Theory 8

4. Theory of Capital & Various interest Rates Notes

5. Utility Theory and Risk Aversion 9

6. Forwards, Futures, & Swaps 10

7. Options & Options Strategies 12

8. Option Pricing Theory: Binomial Lattice 11 & 13

Model & Black-Sholes Equation

* Please note that Graduate Students are allowed one 400 level course on the plan
of study. Or if you prefer, sign up for a 590 with Professor Morin.
 2. DEFINITION AND DESCRIPTION OF FINANCIAL
ENGINEERING

There are a number of different definitions of Financial Engineering. Originally, Financial

Engineering referred to the creation of new securities financial instruments zither by
unbundling -- breaking up and locating the cash Flows from one security to creates new
securities -- or by bundling -- combining more than one security to compost security. Such
creative engineering of new investment products allows one des securities with
custom-tailored reward and risk attributes Currently, Financial Engineering defined as the
design, development, and implementation of innovative financial product financial
processes in the major market segments of currency. Interest rates, equities, and
commodities for trading investment, hedging and risk management. Specifically, the
combination of financial theory, mathematics and information technology has let to the
emergence of a new profession: Financial Engineering. Financial Engineering apply
advanced mathematical methods and Information technology to financial markets and
financial management.

Key Financial Engineering application include:

• Modeling and Forecasting Financial Markets
• Derivative Instruments and Securities
• Hedging and Financial Risk Management
• Asset Allocation and Investment Management
• Quantitative Trading and Arbitrage
• Asset/Liability Management
• Quantitative issues in Corporate and Public Finance Policy
• Information Technology in the Financial Services Industry