This is a course about using Financial Engineering to solve practical risk management and trading problems and about the sales process for selling derivative deals. The focus is on designing and pricing derivative securities to trade on and hedge customized risk exposures – particularly those involving non-linear, path-dependent, and/or multi-variable exposures to interest rates, equity prices, credit events, and commodity prices, –pitching these exotic securities to clients, and managing any associated risks. The valuation tools used to price these derivatives are Risk Neutral Valuation and Monte Carlo Simulation. The course also highlights practical issues about model calibration, model risk, and dynamic hedging. The highlight of the course is a series of in-class team case presentations. While pricing and hedging techniques are important, so too are practical issues such as deciding which risks to share contractually and knowing how to pitch a derivative deal. The in-class presentations are a chance to practice standing in front of a client or boss and sell/explain complicated structured products. Prerequisite: Capstone Course - Must be taken at the end of the program.
Lecture: 100min/wk and Recitation: 50min/wk