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

Postgraduate Course: Financial Engineering (CMSE11471)

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 Credits20 ECTS Credits10
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 This 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, students 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).

The course will provide 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

Student learning on this course will primarily be through reading, thinking, class discussions, attending lectures and tutorials, 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 None
Course Delivery Information
Academic year 2024/25, Not available to visiting students (SS1) Quota:  None
Course Start Semester 2
Timetable Timetable
Learning and Teaching activities (Further Info) Total Hours: 200 ( Lecture Hours 20, Seminar/Tutorial Hours 10, Programme Level Learning and Teaching Hours 4, Directed Learning and Independent Learning Hours 166 )
Assessment (Further Info) Written Exam 0 %, Coursework 100 %, Practical Exam 0 %
Additional Information (Assessment) 60% coursework (Individual) - Assesses all course Learning Outcomes
40% coursework (Individual) - Assesses course Learning Outcomes 1, 2, 4

Feedback Formative: Feedback will be provided throughout the course.

Summative: Feedback will be provided on the assessments within agreed deadlines.
No Exam Information
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
Resource List:
Additional Information
Graduate Attributes and Skills Communication, ICT, and Numeracy Skills

After completing this course, students should be able to:

Convey meaning and message through a wide range of communication tools, including digital technology and social media; to understand how to use these tools to communicate in ways that sustain positive and responsible relationships.

Critically evaluate and present digital and other sources, research methods, data and information; discern their limitations, accuracy, validity, reliability and suitability; and apply responsibly in a wide variety of organisational contexts.
KeywordsNot entered
Course organiserDr Peter Moles
Tel: (0131 6)50 3795
Course secretaryMiss Lindsay Hunter
Tel: (0131 6)50 3823
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