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Garud Iyengar,
Ali Hirsa,
and
Martin Haugh
Introduction to Financial Engineering and Risk Management course belongs to the Financial Engineering and Risk Management Specialization and it provides a fundamental introduction to fixed income securities, derivatives and the respective pricing models. The first module gives an overview of the prerequisite concepts and rules in probability and optimization. This will prepare learners with the mathematical fundamentals for the course. The second module includes concepts around fixed income securities and their derivative instruments. We will introduce present value (PV) computation on fixed income securities in an arbitrage free setting, followed by a brief discussion on term structure of interest rates. In the third module, learners will engage with swaps and options, and price them using the 1-period Binomial Model. The final module focuses on option pricing in a multi-period setting, using the Binomial and the Black-Scholes Models. Subsequently, the multi-period Binomial Model will be illustrated using American Options, Futures, Forwards and assets with dividends.
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What's inside
Syllabus
Course Overview
Welcome to Financial Engineering and Risk Management
Pre-Requisite Materials
Welcome to Week 2! This week, we will cover mathematical foundations that are necessary for the study of future modules. In a nutshell, we will introduce probabilities and optimization. The theory of probability is the mathematical language to characterize uncertainties, e.g. how to describe the chances that the price of a particular stock will go up tomorrow. To make things precise, we need probabilities. Optimization is a set of toolkits that allow us to search for optimal solutions. For example, given a budget constraint, how do we maximize the profit? We need mathematical optimization. Financial engineers apply probabilistic models to capture the regularities of financial products, and apply optimization techniques to optimize their strategies. These mathematical toolkits will serve as a cornerstone for your financial engineering career.
Read more
Syllabus
Course Overview
Welcome to Financial Engineering and Risk Management
Pre-Requisite Materials
Welcome to Week 2! This week, we will cover mathematical foundations that are necessary for the study of future modules. In a nutshell, we will introduce probabilities and optimization. The theory of probability is the mathematical language to characterize uncertainties, e.g. how to describe the chances that the price of a particular stock will go up tomorrow. To make things precise, we need probabilities. Optimization is a set of toolkits that allow us to search for optimal solutions. For example, given a budget constraint, how do we maximize the profit? We need mathematical optimization. Financial engineers apply probabilistic models to capture the regularities of financial products, and apply optimization techniques to optimize their strategies. These mathematical toolkits will serve as a cornerstone for your financial engineering career.
Read more
Traffic lights
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Taught by Martin Haugh, Garud Iyengar, Ali Hirsa, who are recognized for their work in Financial Engineering and Risk Management
Suitable for learners who have a basic understanding of fixed income securities, derivatives, and their respective pricing models
Introduces the 1-period Binomial Model, a simplified framework for calculating the prices of derivative securities
Explores advanced pricing models such as the Black Scholes model, which is widely applicable in practice
Requires learners to have a good foundation in probability and optimization
May not be suitable for learners with no prior knowledge or experience in financial engineering and risk management
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Reviews summary
Foundational financial engineering and risk management
According to learners, this course provides a strong mathematical foundation in probability and optimization, essential for financial engineering. It offers a comprehensive introduction to core concepts including fixed income securities and various derivative pricing models like the 1-period and multi-period Binomial models, and the Black-Scholes model. Students appreciate the clear progression of topics from fundamental principles to more advanced applications. While praised for its theoretical rigor, some might seek more hands-on practical application to complement the foundational knowledge. Overall, it's a solid starting point for aspiring financial engineers.
The weekly modules are well-organized, building knowledge incrementally.
"The weekly structure made it easy to follow, with each module building logically on the last."
"I appreciate how the course guides you through complex topics step-by-step, starting with prerequisites."
"The syllabus outlines a clear path from basics to advanced option pricing, which I found very helpful."
It effectively introduces and prices various derivative securities and models.
"I gained a clear understanding of derivative securities like swaps and options, and how they derive value."
"The progression from 1-period to multi-period Binomial models, and then to Black-Scholes, was logical and thorough."
"I learned practical pricing principles that are widely applicable in financial markets."
The course builds a solid base in essential mathematical and financial principles.
"I appreciate how the course begins with essential mathematical foundations, making complex topics more accessible."
"It perfectly covers the pre-requisite concepts in probability and optimization, which are crucial for finance."
"I found the principles of pricing and fixed income instruments well-explained, laying a strong groundwork."
The course provides strong theoretical grounding but may lack hands-on application.
"I found the theoretical explanations excellent, but I would have loved more practical coding or case studies."
"While it covered the models in depth, I felt a need for more hands-on activities to apply the concepts."
"The course equips me with strong concepts, but I'll need to seek external resources for real-world implementation."
Activities
Be better prepared
before
your course. Deepen your understanding
during
and
after
it. Supplement your coursework and achieve mastery of the topics covered
in Introduction to Financial Engineering and Risk Management with these
activities:
Review Probability and Optimization
Show steps
Ensure a strong foundation in prerequisite concepts to enhance your understanding of subsequent modules.
Browse courses on
Probability
Show steps
-
Review materials on probability distributions, random variables, and statistical inference
-
Review materials on linear programming, nonlinear programming, and optimization algorithms
Compile a Cryptocurrency Data Analysis Resource List
Show steps
Gain a comprehensive overview of resources for analyzing cryptocurrency data, enhancing your ability to extract insights and make informed decisions.
Browse courses on
Financial Markets
Show steps
-
Gather resources on cryptocurrency data sources
-
Include tools and techniques for data analysis
-
Organize the resources into a structured and accessible format
Practice Swap and Option Pricing
Show steps
Reinforce your understanding of swap and option pricing through repetitive exercises, improving your accuracy and speed in solving these problems.
Browse courses on
Option Pricing
Show steps
-
Solve practice problems on swap pricing using the Black model
-
Solve practice problems on option pricing using the Black-Scholes model
Three other activities
Expand to see all activities and additional details
Show all six activities
Create a Term Structure Model
Show steps
Apply the concepts of term structure of interest rates to a practical project, deepening your understanding and ability to apply in the real world.
Browse courses on
Term Structure of Interest Rates
Show steps
-
Choose a term structure model (e.g., Vasicek, CIR, Hull-White)
-
Implement the model in a programming language (e.g., Python, R)
-
Calibrate the model to market data
-
Use the model to price fixed income securities
Follow Tutorials on Advanced Option Pricing Models
Show steps
Expand your knowledge of option pricing beyond the covered models by exploring advanced techniques.
Browse courses on
Option Pricing
Show steps
-
Find tutorials on advanced option pricing models (e.g., Monte Carlo simulation, finite difference methods)
-
Follow the tutorials and implement the models
-
Apply the models to practical option pricing problems
Contribute to an Open-Source Financial Engineering Library
Show steps
Gain practical experience and contribute to the open-source community by working on financial engineering projects.
Browse courses on
Financial Engineering
Show steps
-
Identify an open-source financial engineering library (e.g., QuantLib, Finmath)
-
Find an issue or feature to contribute to
-
Implement the contribution
-
Submit a pull request to the project
Review Probability and Optimization
Show steps
Ensure a strong foundation in prerequisite concepts to enhance your understanding of subsequent modules.
Browse courses on
Probability
Show steps
Show steps
Show steps
- Review materials on probability distributions, random variables, and statistical inference
- Review materials on linear programming, nonlinear programming, and optimization algorithms
Compile a Cryptocurrency Data Analysis Resource List
Show steps
Gain a comprehensive overview of resources for analyzing cryptocurrency data, enhancing your ability to extract insights and make informed decisions.
Browse courses on
Financial Markets
Show steps
Show steps
Show steps
- Gather resources on cryptocurrency data sources
- Include tools and techniques for data analysis
- Organize the resources into a structured and accessible format
Practice Swap and Option Pricing
Show steps
Reinforce your understanding of swap and option pricing through repetitive exercises, improving your accuracy and speed in solving these problems.
Browse courses on
Option Pricing
Show steps
Show steps
Show steps
- Solve practice problems on swap pricing using the Black model
- Solve practice problems on option pricing using the Black-Scholes model
Three other activities
Expand to see all activities and additional details
Show all six activities
Create a Term Structure Model
Show steps
Apply the concepts of term structure of interest rates to a practical project, deepening your understanding and ability to apply in the real world.
Browse courses on
Term Structure of Interest Rates
Show steps
Show steps
Show steps
- Choose a term structure model (e.g., Vasicek, CIR, Hull-White)
- Implement the model in a programming language (e.g., Python, R)
- Calibrate the model to market data
- Use the model to price fixed income securities
Follow Tutorials on Advanced Option Pricing Models
Show steps
Expand your knowledge of option pricing beyond the covered models by exploring advanced techniques.
Browse courses on
Option Pricing
Show steps
Show steps
Show steps
- Find tutorials on advanced option pricing models (e.g., Monte Carlo simulation, finite difference methods)
- Follow the tutorials and implement the models
- Apply the models to practical option pricing problems
Contribute to an Open-Source Financial Engineering Library
Show steps
Gain practical experience and contribute to the open-source community by working on financial engineering projects.
Browse courses on
Financial Engineering
Show steps
Show steps
Show steps
- Identify an open-source financial engineering library (e.g., QuantLib, Finmath)
- Find an issue or feature to contribute to
- Implement the contribution
- Submit a pull request to the project
Career center
Learners who complete Introduction to Financial Engineering and Risk Management will develop knowledge and skills
that may be useful to these careers:
Portfolio Manager
Portfolio Manager
Portfolio managers manage investment portfolios for individuals and institutions. They make investment decisions based on their clients' financial goals and risk tolerance. This course will provide you with the knowledge and skills needed to become a successful portfolio manager. You will learn about portfolio management, investment analysis, and risk management.
Quant Analyst
Quant Analyst
Quant analysts use mathematical and statistical models to analyze financial data and develop trading strategies. They play a critical role in hedge funds and investment banks. This course will provide you with the quantitative skills needed to succeed as a quant analyst. You will learn about probability, statistics, and financial modeling.
Risk Analyst
Risk Analyst
Risk analysts identify, assess, and mitigate risks within organizations. They develop and implement risk management strategies to protect against potential losses. This course will provide you with the tools and techniques needed to become a successful risk analyst. You will learn about risk assessment, risk modeling, and risk mitigation.
Financial Risk Manager
Financial Risk Manager
Financial risk managers identify, assess, and mitigate financial risks within organizations. They develop and implement risk management strategies to protect against potential losses. This course will provide you with the tools and techniques needed to become a successful financial risk manager. You will learn about risk assessment, risk modeling, and risk mitigation.
Financial Analyst
Financial Analyst
Financial analysts provide investment advice and recommendations to clients. They analyze financial data and market trends to identify investment opportunities and make informed decisions. This course will help you develop the analytical and quantitative skills needed to succeed as a financial analyst. You will learn how to evaluate financial statements, build financial models, and assess risk.
Actuary
Actuary
Actuaries use mathematical and statistical models to assess financial risk and uncertainty. They play a critical role in developing insurance policies, pricing financial products, and managing investment portfolios. This course provides a solid foundation in probability, optimization, and financial modeling, which are essential skills for actuaries. By understanding the principles of financial engineering and risk management, you can gain the knowledge and tools needed to succeed in this field.
Financial Advisor
Financial Advisor
Financial advisors help individuals and families manage their finances and make sound investment decisions. They provide personalized financial advice and guidance based on their clients' goals and risk tolerance. This course will provide you with the knowledge and skills needed to become a successful financial advisor. You will learn about financial planning, investment management, and risk mitigation.
Investment Banker
Investment Banker
Investment bankers provide financial advice and services to corporations and governments. They help raise capital, merge and acquire companies, and manage investments. This course will provide you with the knowledge and skills needed to become a successful investment banker. You will learn about corporate finance, financial modeling, and capital markets.
Trader
Trader
Traders buy and sell financial instruments for their own account or on behalf of their clients. They make trading decisions based on their analysis of financial markets and economic trends. This course will provide you with the knowledge and skills needed to become a successful trader. You will learn about financial markets, trading strategies, and risk management.
Data Analyst
Data Analyst
Data analysts collect, clean, and analyze data to identify trends and patterns. They use their findings to make informed decisions and solve business problems. This course will provide you with the analytical and quantitative skills needed to succeed as a data analyst. You will learn about data analysis techniques, data visualization, and statistical modeling.
Financial Planner
Financial Planner
Financial planners help individuals and families manage their finances and achieve their financial goals. They provide personalized financial advice and guidance based on their clients' goals and risk tolerance. This course may be useful for financial planners who want to learn more about financial engineering and risk management.
Operations Research Analyst
Operations Research Analyst
Operations research analysts use mathematical and analytical techniques to solve business problems. They develop models and simulations to optimize operations and improve efficiency. This course may be useful for operations research analysts who want to work in the financial industry or develop financial models.
Economist
Economist
Economists study the production, distribution, and consumption of goods and services. They use their knowledge of economic principles to analyze economic data and make predictions about the future. This course may be useful for economists who want to specialize in financial economics or work in the financial industry.
Statistician
Statistician
Statisticians collect, analyze, and interpret data. They use their knowledge of statistical methods to draw conclusions about the world around them. This course may be useful for statisticians who want to specialize in financial statistics or work in the financial industry.
Software Engineer
Software Engineer
Software engineers design, develop, and maintain software systems. They use their knowledge of computer science and engineering principles to create software solutions for a variety of industries. This course may be useful for software engineers who want to develop financial software or work in the financial industry.
For more career information including salaries, visit:
OpenCourser.com/course/3p4oge/introduction
Reading list
We've selected seven books
that we think will supplement your
learning. Use these to
develop background knowledge, enrich your coursework, and gain a
deeper understanding of the topics covered in
Introduction to Financial Engineering and Risk Management.
Serves as a foundational reference for the course's third and fourth modules on derivative securities and option pricing models. Extensively used as a textbook by academic institutions, it provides a comprehensive exploration of these topics.
Provides a comprehensive introduction to mathematical finance, including applications in investment and finance. Serves as a useful supplementary resource for the entire course.
Provides a comprehensive overview of various financial instruments, including fixed income securities and derivatives. Serves as a valuable supplementary resource for the course's second and third modules.
Provides a solid foundation in probability and statistics, which is essential for understanding the course's first module on probability and optimization.
Provides a detailed introduction to stochastic calculus, with a focus on the binomial asset pricing model. Suitable as a supplementary reference for learners interested in a deeper understanding of the mathematical foundations of option pricing models.
Provides an overview of risk management in financial institutions. Suitable as a supplementary resource for learners interested in the application of financial engineering and risk management in practice.
Provides an introduction to convex optimization, which fundamental technique used in financial engineering for risk management and portfolio optimization. Suitable as a supplementary resource for learners interested in a deeper understanding of optimization techniques.
For more information about how these books relate to this course, visit:
OpenCourser.com/course/3p4oge/introduction
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Rating
4.6
Effort
19 hours to complete
Level
Intermediate
Via
Coursera
Institution
Columbia University
Instructors
Garud Iyengar
Ali Hirsa
Martin Haugh
Language
English
Transcripts
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آذربایجان دیلی
This course belongs to a
collection
called
Financial Engineering and Risk Management. It's comprised of five courses:
- Term-Structure and Credit Derivatives
- Introduction to Financial Engineering and Risk Management (viewing)
- Optimization Methods in Asset Management
- Computational Methods in Pricing and Model Calibration
- Advanced Topics in Derivative Pricing
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