Annexure ‘‘AAB-CD-01’

L T P/ SW/F No. of TOTAL CREDIT

S W PSDA UNITS
Course Title: FINANCIAL ENGINEERING 2 0 0 2 4 3
Course Code: FIBA 704
Credit Units: 3 (*L- Lecture *T – Tutorial *P – Practical *SW – Self work
*FW – Field work *PSDA - Professional Skill Development Activities)

Course Objectives:
Finance has evolved as an exciting discipline in terms of innovations in the recent past. The objective of the course is on the use of mathematical models
on financial instruments and knowledge of innovative tools of financial engineering called derivatives. Financial Engineering starts where financial
analysis ends.
Prerequisites:
The prerequisites are knowledge of Financial Systems, Financial Markets, Fixed Income Securities and Financial Derivatives. Besides, basics of foreign
exchange rates and statistical tools like mean, variance, probability etc should be known to the student. Knowledge of Financial Modeling is also must.
Course Contents/Syllabus:
Descriptors/Topics Weightage

1 Module I Introduction to Financial Engineering & Risk Management 15%

Weightage
Changing Environment and Increasing Price Risks, Financial analysis vs financial engineering ,Financial Engineering as a
response to Increased Risks, Knowledge base of a financial engineer-mathematical & statistical skills, Modeling skills,
Product Knowledge, knowledge of relevant technology, accounting, tax and legal; Types of Risks and Risk Management,
Tools of Risk Management; Discussion on existing financial instruments
2 Module II Futures and Forwards 20%
Weightage
The Futures Markets, Buying and Selling Futures, Static and dynamic hedging ,Devising a Hedging Strategy Using
Futures, Stock Index Futures, Value at Risk (VaR), Short Term and Long Term Interest Rate Futures, Foreign Currency
Futures and Commodity Futures
3 Module III Options 25%
 Weightage
Options Markets; Properties of Stock Option Prices; Option Pricing Models – Binomial Model, Black-Scholes; Model,
Single Period Options – Calls and Puts, Payoff Diagrams of Simple and Complex Option Strategies, Cash Settled Options,
Multi-Period Options – Caps, Floors, Collars, Captions, Swaptions and Compound options, Cross-currency Futures and
Options.
4 Module IV Swaps & (Forward Rate Agreements)FRAs 20%
Weightage
Structure of a Swap, Interest Rate Swaps, Currency of Swaps, Commodity Swaps, Other Swaps, Credit Risk and Credit
Derivatives, Credit default swaps, Role of a Swap Dealer. Basics of FRAs
5 Module V Other Innovations and recent trends 20%
Weightage
Debt Market Innovations, Mortgage Backed Securities, Hybrid Securities, Asset-Liability Management, Exotic Options,
Synthetic Instruments, Developments in Equity-Based Strategies, Direct and Cross Hedges, Future Trends and Issues in
Financial Engineering.

List of Experiments (if any):

Course Learning Outcomes:

CLO 1: Understanding the scope and context of financial derivatives in the economy.
CLO 2: Enabling students to think in terms of innovative solutions to financial problems with particular emphasis on understanding new risks,
which the changing scenario of finance is creating for individuals and firms.
CLO 3: Developing skills in forming effective strategies to cope with the changing risk environment.

Mapping of Course learning outcomes (CLOs) with Graduate Attributes (GA):

Course Learning Outcomes CLO1 CLO2 CLO3
Graduate Attributes

Knowledge and Expertise of Business Environment and Management

Self-directed and Active learning
Research and Enquiry

Information & Communication Technology Skills

Critical thinking and Problem-Solving Abilities

Communication Skills
Creativity, Innovation & Reflective Thinking
Analytical & Decision-Making Ability

Leadership & Teamwork

Multicultural Understanding & Global Outlook

Integrity and Ethics

Social & Emotional Skills

Employability, Enterprise & Entrepreneurship

Lifelong Learning

Environment and sustainability

Pedagogy for Course Delivery:

The course will be delivered mainly through Remote Learning using Four Quadrant Approach , lectures, videos and supported with practical
examples from the current business environment. This course will also be supported by Derivagem software which is used for pricing of derivative
products. Also to include case studies, syndicate session, quizzes and written assignments.
List of Professional Skill Development Activities (PSDA):
1. Dummy Trading on Futures
2. Applying Strategies for Options Trading in Live markets
3. Designing of Swaps
4. Black Scholes Model on Derivagem

Assessment/ Examination Scheme:

Theory L/T (%) Lab/Practical/Studio (%) End Term Examination

50% NA 50%
Theory Assessment (L&T):

Continuous Assessment/Internal Assessment End Term

Examination
Components Project Group Class Quiz Attendance
 (Drop down) Presentation Test

Weightage 15% 10% 10% 10% 5% 50%

(%) PSDA 1 and PSDA 4 PSDA 3 PSDA 2

Mapping Continuous Evaluation components/PSDA with CLOs

Bloom’s Level Understanding Analysing Creating

Course Learning Outcomes CLO1 CLO2 CLO 3
Assessment type/
PSDA
Project  
Group Presentation  
Class Test 
Quiz  
PSDA 1 
PSDA 2 
PSDA 3  
PSDA 4  

Text & References:

 Financial Engineering by Lawrence C. Galtiz, Irwin
 Marshall, J. F. and Bansal, V. K. 2006. Financial Engineering: A Complete Guide to Financial Innovation, Prentice Hall of India.
 Hull, J. C. 2013, Introduction to Futures and Options Markets, 9th edition, Prentice Hall of India.
 Edwards, F. R. and Ma, C. W. 1992, Futures and Options, McGraw-Hill International.
 Rebonato, R. Interest Rate Option Models: Understanding, Analyzing and Using Models for Exotic Interest Rate Options, John Wiley and Sons.
 Kolb, R. W. Understanding Futures Markets, Prentice Hall of India.
 Paul Glasserman, Monte Carlo Methods in Financial Engineering, Springer.
 Riccardo Rebonato, Volatility and Correlation, 2nd edition, Wiley, 2004.
 Damiano Brigo and Fabio Mercurio, Interest Rate Models - Theory and Practice, 2nd edition, Springer, 2006.
 Riccardo Rebonato, Modern Pricing of Interest-Rate Derivatives: The LIBOR Market Model and Beyond, 1st edition, Princeton University Press, 2
 Philipp J. Sconbucher, Credit Derivatives Pricing Models, 1st edition, Wiley, 2003.
 Investment Science by David G. Luenberger
 Investments by Bodie, Kane and Marcus
 Quantitative Finance by T.W. Epps
 All about Investing: The easy way to get started by Esme Faerber, McGraw Hill
 Any other Study Material:
 Articles from Journal of Finance
 Articles from International Journal -Finance India
 Business newspapers
 Yahoo finance (http://finance.yahoo.com/)
 Investopedia (www.investopedia.com) - Investing 101 ,Stock Basics ,Basic Financial Concepts, Bond & Debt Basics ,IPO Basics, Brokers and
Online Trading, Economics Basics, Reading Financial Tables, Understanding the P/E Ratio
 Google Finance (www.google.com/finance)
 Capital Ideas: The Improbable Origins of Modern Wall Street by Peter Bernstein
 When Genius Failed: The Raise and Fall of Long-Term Capital Management by Lowenstein