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DRPS : Course Catalogue : Business School : Common Courses (Management School)

Postgraduate Course: Financial Engineering (CMSE11290)

Course Outline
SchoolBusiness School CollegeCollege of Arts, Humanities and Social Sciences
Credit level (Normal year taken)SCQF Level 11 (Postgraduate) AvailabilityNot available to visiting students
SCQF Credits15 ECTS Credits7.5
SummaryThis course focuses on the application of financial principles and, in particular, derivatives in addressing financial problems. There will be a focus on the the use of derivatives as risk-management and securities structuring instruments.
Course description the course is built around four key areas which relate to how the principles of finance and derivatives, in particular, can be used to address problems in finance. As a topic, financial engineering is strongly practical while at the same time drawing on key insights from finance and the pricing of derivatives. it makes use of a wide variety of insights from the theory and practice of financial management and integrates these into how they are applied in practice through the way " structured securities" are created as well as other examples of financial engineering (e.g. risk management).

Over the course, you will be exposed to a variety of applications of the key tools of finance, both in terms of how to model cash flows and making use of the derivative product set (that is, forward contracts, futures, swaps and options).

It does this by providing you with examples of how the tools, knowledge and understanding of the derivative product set can be applied to particular representative problems in securities structuring, risk management and cash flow sculpting. A key part of the subject is to demonstrate the practical application of both the theory and practice of finance within a range of contexts. Consequently, the emphasis in the course is on practical financial management and pricing transactions rather than the mathematics of derivatives. to integrate the discussion, the course stresses the relationship that exists between derivatives and fundamental financial instruments (cash securities) and, in particular, the important no-arbitrage conditions that underlie the pricing of derivatives. Note that the course does not delve into the more advanced aspects of derivatives valuation such as stochastic processes, although an intuitive understanding of this is required.

After introducing the key elements of financial engineering early on, the course will explore initially how to use terminal instruments (forwards, futures and swaps) before expanding to examine the important role played by options as risk management tools. Key aspects of options, their modelling and risk management are covered within the focus on practical application of these instruments either on their own or as part of a portfolio.

Student Learning Experience

Your learning on this course will primarily be through reading, thinking, class discussions, attending lectures and tutorials, and solving exercises, and attempting problems. The ideas introduced by the course can take time to absorb and students should expect to have to go over some ideas several times before they are understood properly.
Entry Requirements (not applicable to Visiting Students)
Pre-requisites Co-requisites
Prohibited Combinations Other requirements For Business School PG students only, or by special permission of the School. Please contact the course secretary.
Course Delivery Information
Academic year 2019/20, Not available to visiting students (SS1) Quota:  None
Course Start Semester 2
Timetable Timetable
Learning and Teaching activities (Further Info) Total Hours: 150 ( Lecture Hours 20, Seminar/Tutorial Hours 10, Online Activities 10, Formative Assessment Hours 10, Summative Assessment Hours 2.5, Revision Session Hours 1.5, Programme Level Learning and Teaching Hours 3, Directed Learning and Independent Learning Hours 93 )
Additional Information (Learning and Teaching) Self-study, class preparation, revision and researching, preparing and writing up assignments 93 hrs
Assessment (Further Info) Written Exam 40 %, Coursework 60 %, Practical Exam 0 %
Additional Information (Assessment) Individual assignment worth 30%
Group assignment worth 30%
Final exam worth 40%
Feedback Students will get written feedback on all coursework. There will be general feedback on the final exam.

Students are provided with formative tests each week on the week's topic that are available on Learn and on completion, with complete answers.
Exam Information
Exam Diet Paper Name Hours & Minutes
Main Exam Diet S2 (April/May)1:00
Learning Outcomes
On completion of this course, the student will be able to:
  1. Explain and critically discuss the concepts behind financial engineering
  2. Understand how derivatives are used by financial practitioners to address problems in finance and investment
  3. Formulate and explain the approaches used in current methodologies used to price derivatives, and be able to price a variety of options using both analytical and numerical methods
  4. Have an understanding of the theory and practice of engineering of new financial products
  5. Explain and be able to apply option pricing to deal with the special nature of different types of underlier
Reading List
Additional Information
Graduate Attributes and Skills Not entered
Course organiserDr Peter Moles
Tel: (0131 6)50 3795
Course secretaryMiss Yvonne Stewart
Tel: (0131 6)51 5333
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