IC302: Financial Engineering

Module code: IC302

Module provider: ICMA Centre; Henley Business School

Credits: 20

Level: Level 3 (Honours)

When you'll be taught: Semester 1

Module convenor: Dr Samah El Hajjar, email: s.elhajjar@icmacentre.ac.uk

Pre-requisite module(s): BEFORE TAKING THIS MODULE YOU MUST ( TAKE IC212 (Compulsory)

Co-requisite module(s):

Pre-requisite or Co-requisite module(s):

Module(s) excluded:

Placement information: na

Academic year: 2024/5

Available to visiting students: Yes

Talis reading list: No

Last updated: 27 June 2024

Overview

Module aims and purpose

Financial Engineering is the application of engineering methods to finance for the design, analysis, and construction of financial contracts that meet the needs of investors and companies. This basic course of Financial Engineering provides an overview of the theory and practice of Financial Engineering, with emphasis on contract design, payoffs replication, and application of simple derivatives pricing and hedging methodology to complex derivatives and structured products.

This module is designed to combine theoretical and practical approaches to financial engineering of derivatives. The focus of this module is on modelling fixed income derivatives, credit derivatives, and exotic options.

Module learning outcomes

By the end of the module, it is expected that students will be able to:

• outline and illustrate the main concepts of Financial Engineering;
• describe the most popular fixed income, credit derivatives, and exotic options;
• identify, compare, and apply the related modelling and pricing methods for derivatives;

Module content

             1.Introduction to Financial Engineering

2.Interest rate derivatives modelling

3.Swaps

4.Credit default swaps and other credit derivatives

5.Basic numerical procedures for valuing options

6.Interest rate options

7.Exotic options

8.Options on stock indices and currencies

9.Valuing options through Monte Carlo Simulation

10.Structured products

Structure

Teaching and learning methods

The core theories, definitions, concepts, and practical aspects of using financially engineered products will be presented and discussed during lectures. Problem sets will be solved in seminars.

Study hours

At least 30 hours of scheduled teaching and learning activities will be delivered in person, with the remaining hours for scheduled and self-scheduled teaching and learning activities delivered either in person or online. You will receive further details about how these hours will be delivered before the start of the module.

Please note the independent study hours above are notional numbers of hours; each student will approach studying in different ways. We would advise you to reflect on your learning and the number of hours you are allocating to these tasks.

Semester 1 The hours in this column may include hours during the Christmas holiday period.

Semester 2 The hours in this column may include hours during the Easter holiday period.

Summer The hours in this column will take place during the summer holidays and may be at the start and/or end of the module.

Assessment

Requirements for a pass

A minimum mark of 40%.

Summative assessment

Penalties for late submission of summative assessment

The Support Centres will apply the following penalties for work submitted late:

Assessments with numerical marks

• where the piece of work is submitted after the original deadline (or any formally agreed extension to the deadline): 10% of the total marks available for that piece of work will be deducted from the mark for each working day (or part thereof) following the deadline up to a total of three working days;
• the mark awarded due to the imposition of the penalty shall not fall below the threshold pass mark, namely 40% in the case of modules at Levels 4-6 (i.e. undergraduate modules for Parts 1-3) and 50% in the case of Level 7 modules offered as part of an Integrated Masters or taught postgraduate degree programme;
• where the piece of work is awarded a mark below the threshold pass mark prior to any penalty being imposed, and is submitted up to three working days after the original deadline (or any formally agreed extension to the deadline), no penalty shall be imposed;
• where the piece of work is submitted more than three working days after the original deadline (or any formally agreed extension to the deadline): a mark of zero will be recorded.

Assessments marked Pass/Fail

• where the piece of work is submitted within three working days of the deadline (or any formally agreed extension of the deadline): no penalty will be applied;
• where the piece of work is submitted more than three working days after the original deadline (or any formally agreed extension of the deadline): a grade of Fail will be awarded.

The University policy statement on penalties for late submission can be found at: https://www.reading.ac.uk/cqsd/-/media/project/functions/cqsd/documents/qap/penaltiesforlatesubmission.pdf

You are strongly advised to ensure that coursework is submitted by the relevant deadline. You should note that it is advisable to submit work in an unfinished state rather than to fail to submit any work.

Formative assessment

Formative assessment is any task or activity which creates feedback (or feedforward) for you about your learning, but which does not contribute towards your overall module mark.

Reassessment

Additional costs