Financial Engineering

BMAN30242 Financial Engineering 10 Semester 2 Undergraduate Level 3 George Christodoulakis Unit coordinator 1 FHEQ level (Framework for Higher Education Qualifications) ' Last part of a Bachelors ' European Credit Transfer & Accumulation System Rating : 5.0 The course consists of a series of lectures which aim to provide students with the tools necessary to deeply understand the material, which will allow undertaking independent research in the future. It starts with an introduction to financial products such as bonds, options, interest rate futures and an analysis of how these products are priced. Further, the course covers options on bonds and interest rate options, such as interest rate caps and floors, including an analysis of how these products are priced in a stochastic interest rate environment. Then the course presents methods to measure credit risk including pricing of credit default swaps. Particular emphasis is given throughout the course to how these instruments may be used to hedge various risks a firm is exposed to. The course consists of a series of lectures which aim to provide students with the tools necessary to deeply understand the material, which will allow undertaking independent research in the future. It starts with an introduction to financial products such as bonds, options, interest rate futures and an analysis of how these products are priced. Further, the course covers options on bonds and interest rate options, such as interest rate caps and floors, including an analysis of how these products are priced in a stochastic interest rate environment. Then the course presents methods to measure credit risk including pricing of credit default swaps. Particular emphasis is given throughout the course to how these instruments may be used to hedge various risks a firm is exposed to. The main aim of this course is to extend students' understanding of the concepts and techniques of Financial Engineering and to train students to apply those valuation techniques to the most widely used types of bonds and interest rate derivatives. This course develops skills in pricing complex financial instruments such as Options on Bonds, Interest Rate Caps and Floors, as well as Swaps and Swaptions. It enhances students' understanding of credit risk modeling, and covers Probability of Default estimation, Credit Ratings, and Credit Default Swaps.  By the end of the course successful students should: - be familiar with various bonds and interest rate derivatives, as well as with techniques used to price these financial products - understand how such derivatives can be valued in a deterministic and a stochastic interest rate environment - be able to independently price these and similar financial products - understand  the principle of quantitative credit risk techniques - be able to apply credit risk related methods to empirical problems - be able to apply all discussed financial instruments and techniques to hedge or manage different risk exposure  Lecture hours: 20 (2 one hour lectures per week for 10 weeks) Workshops: 2 hours (2 one hour workshops for 2 weeks) Private study: 78 hours Total study hours: 100 hours split between lectures,workshops, self-study and preparation for classes and examination.  Informal Contact Methods 1. Office Hours 2. Online Learning Activities (blogs, discussions, self assessment questions) 3. Informal discussions and question and answers after each lecture 4. Answering student emails Blackboard/ Virtual Environments provides: - Course structure and teaching materials. - Announcements. It’s important to visit the website regularly so that you do not miss any important announcements. - Handouts, including the lecture transparencies, articles to read (where permissible by copyright laws), and tutorial questions. The lecture transparencies will appear on the Blackboard not later than one week before the corresponding lecture. This course uses the website as the sole method of distributing course materials. - A forum, on which the frequently asked questions will be discussed. The questions are also accepted per e-mail. The important answers will be posted on the Blackboard. 0 Other 100% 1.5 hour Examination (100%)   Methods of Feedback to Students - Informal advice and discussion during a lectures and workshops. - Responses to student emails and questions from a member of staff including feedback provided to a group via an online discussion forum on Blackboard. - Generic feedback posted on Blackboard regarding overall examination performance. BMAN23000 Foundations of Finance A Pre-Requisite Compulsory BMAN23000B Foundations of Finance B Pre-Requisite Compulsory BMAN20242 Introduction to Corporate Finance and Financial Instruments Pre-Requisite Compulsory BMAN23000C Foundations of Finance C Pre-Requisite Compulsory BMAN23000(A), (B) or (C) or BMAN20242 is a pre-requisite of BMAN30242. Also strongly recommended to take BMAN30091 in semester 1.Pre-requisite course units have to be passed by 40% or above at the first attempt unless a higher percentage is indicated within this course outline. If the pre-requisite unit is defined as a compulsory course unit within your programme of study (Maths with Finance, IBFE, Accounting, BA Econ pathways for example) then progression onto the dependent unit is permitted as long as you have gained the appropriate amount of credit to progress on to the following year of your registered undergraduate programme. Pre-requisites: BMAN23000(A) or (B)or (BMAN20242 for final year BSc Actuarial Science and Maths students).BMAN30091 Financial Derivatives is strongly recommended.   N This course is based largely on two main books listed below. Reading the corresponding book chapters is highly recommended for successful completion of the course. Some further supplementary reading materials may be provided at a later stage of the course. 1. Option, Futures, and Other Derivatives, John C. Hull, Prentice Hall. Edition 7 or 8. 2. Financial Engineering: Derivatives and Risk Management, K. Cuthbertson and D. Nitzsche, John Wiley and Sons, New York, 2006. The relevant chapters are 15 and 18. You may also wish to consult other texts, such as: Derivative Securities, R. Jarrow and S. Turnbull, South-Western College Publishing, UK, 2000. The relevant chapter is 5, and section 15.3.   Assessment written exam 1.5 Lectures 20 Practical classes & workshops 2 0 76.5 Length of course: 12 weeksPre-requisite course units have to be passed by 40% or above at the first attempt unless a higher percentage is indicated within this course outline. If the pre-requisite unit is defined as a compulsory course unit within your programme of study (Maths with Finance, IBFE, Accounting, BA Econ pathways for example) then progression onto the dependent unit is permitted as long as you have gained the appropriate amount of credit to progress on to the following year of your registered undergraduate programme. Pre-requisites: BMAN23000(A) or (B)or (BMAN20242 for final year BSc Actuarial Science and Maths students). BMAN30091 Financial Derivatives is strongly recommended. Co-requisites: None Dependent course units: None Programme restrictions: There are no programme restrictions for this course providing the pre-requisites listed below are met. BMAN30242 is available to study abroad and exchange students admitted through the University of Manchester International Programmes Office.For Academic Year 2025/26Updated: March 2025Approved by: March UG Committee