IE 420

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Credit: 3 OR 4 hours.

Introduction to the theory and practice of financial engineering: basics of derivative securities and risk management; Markowitz portfolio theory and capital asset pricing model; interest rate and bonds; forward and futures contracts, hedging using futures contracts; option contracts and arbitrage relationship; binomial model, no-arbitrage pricing, risk-neutral pricing, and American options pricing; Brownian motion, Black-Scholes-Merton model, delta hedging, Greek letters, implied volatility, and volatility smile.

3 undergraduate hours. 4 graduate hours. Prerequisite: IE 300.

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