Introduction

This course is a continuation of FE 535. It is divided in 2 parts: Lectures and Practice. On the Lectures section the course begins with Risk management case studies. It continues with basic and advance theory of volatility trading (with emphasis in FX market) before focusing into strategies for quantitative investing. Credit Derivatives will be introduced along with the pricing models using Hazard rates and Copula Models. Modern regulatory theory using Basel II, Basel III, and CVA as a starting point will be analyzed. We would usually have 2 or 3 classes given by invited speakers who are practitioners with long trajectories as traders, structurers or quants. On the Practice section we spend the whole semester on a trading contest. The contest consists on: 1- building a system to book, model and risk derivatives (delta 1, vanilla options and second level options); 2- creating a trading book composed of dozens of trades. 3- Hedging the book and trying to maximize the profit while following a real live market. The idea is to get as close as possible to a real-life trading experience. At the end of the semester the student with the largest profit (and with an acceptable system) wins the yearlong trading contest. Homework (about 7 homework per semester) is the only source of grading. Homework is directly related to the lectures and to the Practice.

Learning Outcomes

Textbook

Practical Methods of Financial Engineering and Risk Management, Rupak Chatterjee, Apress-Springer, 2014.

Additional References

Risk Management and Financial Institutions, John Hull, John Wiley & Sons, 2012.

Monte Carlo Methods in Financial Engineering, Paul Glasserman, Springer-Verlag, 2004.

Fixed Income Securities, 3rd Edition, Bruce Tuckman & Angel Serrat, Wiley Finance, 2012.

Grading Policies