Course code: FRE 6103

Spring 2022: Finance and Risk Engineering Program at NYU Tandon Engineering School

Overview

FRE 6103 introduces financial engineers to robust risk-based valuation methods in discrete time in four major applications: cash flows, traded derivative contracts, nontraded and embedded derivatives, and corporate assets and liabilities.

This course is not a generalist MBA finance course. Designed for engineers, it focuses on deep analytical methods, is computational in nature, and is driven by practical problems encountered by finance professionals. Being an introductory core course, it does not go into depth into all subject areas. Still, it provides a suitable and broad foundation for advanced elective courses in advanced valuation, corporate finance, investment, derivatives, and trading.

Inclusion Statement

The NYU Tandon School values an inclusive and equitable environment for all our students. I hope to foster a sense of community in this class and consider it a place where individuals of all backgrounds, beliefs, ethnicities, national origins, gender identities, sexual orientations, religious and political affiliations, and abilities will be treated respectfully. I intend that all students’ learning needs be addressed both in and out of class and view diverse students as a resource, strength, and benefit. If this standard is not being upheld, please feel free to speak with me.

Help and Office

Materials

Assignments

Attendance and penalty for missing classes

Requiring attendance is necessary for several reasons. First, many of you misjudge how much you miss out on learning when you miss classes. It is difficult to catch up once you miss a class. Watching a video (if available) is inadequate as it is cognitively far inferior to paying attention in a classroom. Second, less than 25% of the students who miss a class watch the video (if available). As a result, they are lost in subsequent classes, which provides wrong signals to me as an instructor. Third, there is diminished classroom interaction and poorer quality of class discussion if you are absent. Fourth, you do not get enough feedback if you do not work through the questions I pose in class. Fifth, I lose the feedback on how much you are learning with fewer questions in class.

The policy below will be in effect only after the add/drop period.

Without mandatory attendance, as much as half the class can be absent. Therefore, though I dislike doing this, I penalize absences. I understand that there are valid reasons for absences. If you anticipate being absent for good reasons, please email me well in advance. You can enter "Excused" on the attendance sheet described below to avoid the penalty if I approve. If you miss a class due to emergencies and cannot tell me in advance, do not panic. Take care of the emergency first and then email me. I will permit you to change the "absent" to "excused." But, if you miss a class without a valid reason, there is a penalty, as shown below.

For sections meeting in 150-190 minute sessions, you would lose one grade (A to A-, A- to B+, B+ to B, B to B-, and so on) for EVERY missed session unless you were explicitly excused via email. Thus, if you miss two class sessions, you would lose two grades, and so on.

For sections meeting in 75-80 minute sessions, you would lose one grade (A to A-, A- to B+, B+ to B, B to B-, and so on) for EVERY TWO missed sessions unless you were explicitly excused via email. Thus, if you miss four class sessions, you would lose two grades, and so on.

Please sit in the same seat in every class and display your name tags. After entering the class, please mark yourself present in the first 20 minutes in the OneDrive sheet (link posted on OneDrive after the add/drop period is over.) You will be marked absent if you are more than 20 minutes late unless it is because of factors beyond your control (traffic, subway, interviews running late). You will also be marked absent if you leave the class early unless you have my permission or get it afterward. You will get an F in the course if you are caught cheating on the attendance sheet.

Exams and Grading

TENTATIVE Schedule

Date Topic
1 Annuities and perpetuities: Basic and complex
2 Complex cash flow patterns: Variable rates
3 Bonds: Fixed rate, Strips, Yield curves
4 Bonds: Floating rates
5 Bonds: Defaults
6 Simulations in Finance
7 Stochastic Processes in Finance
8 NO CLASS. Spring Break
9 Risk and Capital Requirements
10 Portfolio Theory
11 Portfolio-based Simulations
12 Forwards and Futures
13 Forwards and Futures
14 Options
15 Simulating Options