Financial Engineering
FINANCIAL ENGINEERING
Unit I: Introduction to Financial Engineering- Scope- Tools- Financial Engineering Vs.
Financial Analysis- Factors contributing to the growth of financial engineering.- Innovative
Products of the Last twenty years- present changing scenario of securities industry.
Unit I: Introduction to Financial Engineering
Unit I see the prescribed Text book. Unit II is OK
What is Finance?
• Finance is about the bottom line of business activities
• Every business is a process of acquiring and disposing assets
– Real asset
– tangible and intangible
– Financial assets
• Objectives of business
– Valuation of assets
– Management of assets
• Valuation is the central issue of finance
Money vs. Finance
What is Financial Engineering?
• Financial Engineering refers to the bundling and unbundling of securities. • This is done in order to maximize profits using different combinations of equity, futures, options, fixed income, and swaps.
• They apply theoretical finance and computer modeling skills to make pricing, hedging, trading and portfolio management decisions.
Financial Engineers are prepared for careers in:
What is Financial Engineering?
• Generalizing: Financial Engineering involves the design, the development, and the implementation of innovative financial instruments and processes, and the formulation of creative solutions to problems in finance.
• Specializing: Financial Engineering is risk management via creative structural tools.
Type of Asset Exp. R of R Risk Level
1 Bank accounts
2.5-3% No risk of deposit loss. Inflation risk.
2 Money-market deposit accounts 3.5-4% No risk of deposit loss. Rates geared to inflation 3 Money-market funds
4.5-5% Very little. Rates vary with inflation.
4 Special 6-month certificates 5% Early withdrawals subject to penalty. Rates geared to expected inflation.
5 High-quality corporate bonds 8-8.25% Very little if held to maturity. Rate geared to expected long-run inflation rate.
6 Diversified portfolio of blue-chip common
Unit I: Introduction to Financial Engineering- Scope- Tools- Financial Engineering Vs.
Financial Analysis- Factors contributing to the growth of financial engineering.- Innovative
Products of the Last twenty years- present changing scenario of securities industry.
Unit I: Introduction to Financial Engineering
Unit I see the prescribed Text book. Unit II is OK
What is Finance?
• Finance is about the bottom line of business activities
• Every business is a process of acquiring and disposing assets
– Real asset
– tangible and intangible
– Financial assets
• Objectives of business
– Valuation of assets
– Management of assets
• Valuation is the central issue of finance
Money vs. Finance
What is Financial Engineering?
• Financial Engineering refers to the bundling and unbundling of securities. • This is done in order to maximize profits using different combinations of equity, futures, options, fixed income, and swaps.
• They apply theoretical finance and computer modeling skills to make pricing, hedging, trading and portfolio management decisions.
Financial Engineers are prepared for careers in:
What is Financial Engineering?
• Generalizing: Financial Engineering involves the design, the development, and the implementation of innovative financial instruments and processes, and the formulation of creative solutions to problems in finance.
• Specializing: Financial Engineering is risk management via creative structural tools.
Type of Asset Exp. R of R Risk Level
1 Bank accounts
2.5-3% No risk of deposit loss. Inflation risk.
2 Money-market deposit accounts 3.5-4% No risk of deposit loss. Rates geared to inflation 3 Money-market funds
4.5-5% Very little. Rates vary with inflation.
4 Special 6-month certificates 5% Early withdrawals subject to penalty. Rates geared to expected inflation.
5 High-quality corporate bonds 8-8.25% Very little if held to maturity. Rate geared to expected long-run inflation rate.
6 Diversified portfolio of blue-chip common