IC302-Financial Engineering

Module Provider: ICMA Centre
Number of credits: 20 [10 ECTS credits]
Terms in which taught: Autumn term module
Pre-requisites: IC212 Financial Modelling or IC206 Financial Modelling/CMS
Non-modular pre-requisites:
Co-requisites: IC317 Derivative Securities
Modules excluded:
Current from: 2022/3

Module Convenor: Mr Mohammad Shehub Bin Hasan
Email: m.binhasan@icmacentre.ac.uk

Type of module:

Summary module description:

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. It builds on concepts introduced in the module Derivatives Securities. The focus of this module is on modelling fixed income derivatives, credit derivatives and exotic options.

Assessable learning outcomes:
By the end of the module, students will be able to: i) Describe the most popular fixed income, credit derivatives, and exotic options; ii) Identify, compare and apply the related modelling and pricing methods for derivatives; iii) Outline and illustrate the main concepts of Financial Engineering; iv) Build simple Excel spreadsheets for pricing of derivatives.

Additional outcomes:

The student will develop familiarity with sources of financial market data and news and gain experience in analysing them. The student will learn to relate economic news to issues and topics discussed in the classes.

Outline 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. Structured products.

Brief description of teaching and learning methods:
There is a combination of lectures on the different types of derivatives, pricing methods related to these and on the engineering of these products. The seminar problems provide an experimental learning and hands-on pricing exercises. During the seminars, students are guided through the solutions to exercises. Students are made aware of information available on the internet about derivatives in different markets.

Contact hours:
  Autumn Spring Summer
Lectures 18
Seminars 7
Guided independent study:      
    Wider reading (directed) 40
    Exam revision/preparation 60
    Advance preparation for classes 30
    Preparation for seminars 32
    Reflection 13
Total hours by term 0 0
Total hours for module 200

Summative Assessment Methods:
Method Percentage
Written exam 80
Class test administered by School 20

Summative assessment- Examinations:

One Final Written Examination (1.50 hours).

The examination for this module will require a narrowly defined time window and is likely to be held in a dedicated exam venue.

Summative assessment- Coursework and in-class tests:

One 1-hour in-class test during the last week of the Autumn Term

Formative assessment methods:

Penalties for late submission:

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

  • 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 five working days;

  • where the piece of work is submitted more than five working days after the original deadline (or any formally agreed extension to the deadline): a mark of zero will be recorded.

The University policy statement on penalties for late submission can be found at: http://www.reading.ac.uk/web/FILES/qualitysupport/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.

Assessment requirements for a pass:
A minimum mark of 40%.

Reassessment arrangements:

Resits are in August/September

Additional Costs (specified where applicable):

1) Required text books: Options, Futures, and Other Derivatives, 9/E, John C Hull, ISBN-10: 0133456315 (Textbook cost on publisher website as of March 2021: £42.39) 2) Specialist equipment or materials: 3) Specialist clothing, footwear or headgear: 4) Printing and binding: 5) Computers and devices with a particular specification: 6) Travel, accommodation and subsistence:


Last updated: 22 September 2022


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