The School of Engineering of Boğaziçi University, in collaboration with the School of Economics and Administrative Sciences and the School of Arts and Sciences, is starting a new Master of Science (MS) degree program in Financial Engineering (FE). This is an interdisciplinary program offered jointly by the Department of Industrial Engineering, Department of Mathematics and the Department of Management. It is the first academic program in Financial Engineering in Turkey that is recently approved by Higher Education Council (YÖK). It is organized as a Secondary Graduate Program of the Institute for Graduate Studies in Science and Engineering.
"Secondary Graduate Programs" are distinguished from the regular graduate programs in two aspects. In the Secondary Graduate Programs:
a) Courses are held in the evening during the week and during daytime on Saturdays. (In our prorgam classes are held between 19:00 and 22:00 on Mondays and Wednesdays and between 09:00 and 17:00 on Saturdays.) b) There is no M.S. Thesis requirement, instead there is a Team Project requirement.
The main objective of the program is to provide graduate level technical education to students who want to work in the new and growing finance industry. This includes investment banks and corporations, financial management and consulting companies, insurance companies and firms that invest in financial markets. Recent developments during the last decades have shown the need for an educational program whose graduates are equipped with the necessary tools and techniques to evaluate financial markets, determine investment strategies, as well as design, engineer and market new financial products. The topic has become more appealing with the emergence of new securities and financial instruments, like options, swaps, interest rate derivatives, credit derivatives and private retirement plans. A graduate of the program is expected to work not only in companies that market financial products, but also in the finance department of general service or manufacturing firms.
During the last few years, many respectable universities including Princeton University, Columbia University, Cornell University, University of California at Berkeley, and Carnegie Mellon, among many others, have instituted MS and ME programs in financial engineering. The reason is to satisfy the growing demand initiated by the finance industry for a new MS level education in the field. We will establish the first MS program in financial engineering in a Turkish university. The academic requirements of the program need the cooperation of several disciplines like economics, management, industrial engineering and mathematics. This is obtained through the establishment of a new program that is not already available as part of a graduate program in any university in Turkey.
Students will be exposed to a technically rigorous curriculum that provides a strong base in quantitative techniques and stochastic modeling. The main emphasis is on the application of these techniques and models in financial markets through computational methods and simulation. Due to the apparent diversity of the educational program, it has an interdisciplinary structure that involves the three main schools of the university.
ACADEMIC CURRICULUM
Students who have successfully completed the requirements of the FE program will receive an MS degree. The graduation requirement is to complete 31 credits of course work consisting of 9 required, 2 elective courses and a non-credit graduation project. This can be accomplished in 3 semesters under normal circumstances. The students will select their elective courses by consulting their academic advisor. In order to address the expectations of the students and to have them benefit at their own work, the program includes a project for 2 semesters. The graduation project is non-credit and it requires teamwork by groups of 2-4 students on an applied topic under the supervision of a faculty member for 2 semesters. The classes will be held in the evening during the week, and in the daytime at the weekends.
The courses of the program are listed below:
a) Required Courses (9 Courses):
FE 500 Introduction to Financial Engineering
FE 501 Optimization Models in Economics and Finance
FE 502 Fundamentals of Economics
FE 507 Mathematics of Uncertainty
FE 515 Financial Econometrics
FE 520 Financial Calculus
FE 521 Derivative Securities and Markets
FE 522 Computational Finance
FE 523 Investment Analysis and Portfolio Theory
b) Elective Courses (2 Courses):
FE 514 Corporate Finance
FE 519 Money and Capital Markets
FE 524 Dynamics of Financial Systems
FE 526 Decision Analysis
FE 532 Risk Analysis and Insurance Pricing
FE 534 Life Insurance and Pension Plans
FE 536 Risk Management in Financial Institutions
FE 538 Valuation with Real Options
FE 581 Data Mining in Finance
FE 582-599 Special Topics in FE
c) Project
FE 571/572 Financial Engineering Project
Schedule of Classes
FE 514 Corporate Finance
FE 515 Financial Econometrics
FE 520 Financial Calculus
FE 521 Derivative Securities and Markets
FE 581 Data Mining in Finance
FE 587 C++ Programming for Finance
FE 571 Financial Engineering Project I
FE 572 Financial Engineering Project II
FE 500 Introduction to Financial Engineering
FE 501 Optimization Models in Ec. and Finance
FE 502 Fundamentals of Economics
FE 507 Mathematics of Uncertainty
FE 514 Corporate Finance
FE 522 Computational Finance
FE 523 Investment Analysis & Portfolio Theory
FE 536 Risk Management in Financial Institutions
FE 571 Financial Engineering Project I
FE 572 Financial Engineering Project II
FE 586 Numerical Methods in Finance
COURSE DESCRIPTIONS
FE 500 Introduction to Financial Engineering (0+2+0) 1
Introduction and orientation to financial engineering (FE); illustrations of basic research, models and applications presented in a lecture series by FE faculty and expert speakers from the finance sector.
FE 501 Optimization Models in Economics and Finance (3+0+0) 3
Overview of optimization concepts: modeling-analysis-decision loop in financial and economic practice; linear, non-linear, integer and dynamic programming applications in finance and economics. Discrete optimization models in finance: modeling possibilities through binary and integer variables; relaxation methods; branch-and-bound methods; simulated annealing and genetic algorithms. Quadratic and convex programming, applications in portfolio management by using of linear and nonlinear programming software.
FE 502 Fundamentals of Economics (3+0+0) 3
Basics of macroeconomics: money, inflation, income, and unemployment; banking and financial markets; exchange rate determination; emerging markets. Basics of microeconomics: demand, supply, and market equilibrium; perfect competition; imperfect competition; cooperative and non-cooperative solutions in game theory with financial applications.
Prerequisite: Undergraduate level economics course
FE 507 Mathematics of Uncertainty (3+0+0) 3
Random variables, expectations and variance, Binomial, Poisson and Normal Distributions, Law of Large Numbers; methods of data analysis, univariate and multi-variate models, estimation, confidence intervals, hypothesis testing problems, analysis of variance, regression and correlation analysis, goodness of fit tests, maximum likelihood estimation; Central Limit Theorems, generating and characteristic functions, moments, conditional probabilities; Markov Chains, random walks as martingales, discrete to continuous stochastic processes, binomial model of stock prices, Arbitrage Pricing Theory, pricing of a European Call Option, Black-Scholes equation.
FE 514 Corporate Finance (3+0+0) 3
Fundamental concepts; time value, risk and return; valueing stocks and bonds; financial statement analysis; break-even and risk analysis; investment criteria; optimal capital structure; types of financing; discussion on Initial Public Offerings (IPOs), mergers and acquisitions.
FE 515 Financial Econometrics (3+0+0) 3
Basic financial time series modelling extended to advanced topics on stochastic volatility, testing and comparing Value-at-Risk (VaR) measures and fixed income econometrics; overview of dynamic models AR, MA, ARMA, VAR and forecasting with ARIMA and VAR models; applications of Arch and Garch models in forex and stock returns; efficient market hypothesis and predictability of asset returns.
Prerequisite: FE 507
FE 519 Money and Capital Markets (3+0+0) 3
Introduction to the Turkish economy; facts and figures; information on financial institutions; Central Bank; financial assets, their size, types and issues; legal structure; creation of the Central Bank money and bank money; government budget and its financing problems; flows and stocks of foreign exchange, balance of payments, international reserves and external debt.
FE 520 Financial Calculus (3+0+0) 3
From random walk to Brownian motion, quadratic variation and volatility, stochastic integrals, martingale property, Ito formula, geometric Brownian motion, solution of Black-Scholes equation, stochastic differential equations, Feynman-Kac theorem, Cox-Ingersoll-Ross and Vasicek term structure models, Girsanov's theorem and risk neutral measures, Heath-Jarrow-Morton term structure model, exchange-rate instruments.
Prerequisite: FE 507
FE 521 Derivative Securities and Markets (3+0+0) 3
Introduction to options, forward and futures markets; determinants of option values; portfolio strategies using options; put - call parity, spot - futures parity, early exercise; binomial model; Black - Scholes model; option deltas and elasticities; delta hedging, pitfalls of dynamic hedging; forward rate agreements (FRA), futures implied forward rates; interest rate, cross currency and equity swap methods; combining derivatives to engineer new products.
Prerequisite: Concurrently with FE 520
FE 522 Computational Finance (3+0+0) 3
Simulation methodology; software packages; uniform and non-uniform random variate generation; Monte-Carlo methods; variance reduction techniques; splines; matrix factorisations; finite difference methods; value-at-risk and option pricing computations.
Prerequisite: FE 520
FE 523 Investment Analysis and Portfolio Theory (3+0+0) 3
Financial securities and markets; fixed income securities, equity and derivative securities; mean-variance portfolio theory; the portfolio selection process; single-index, multi-index models and grouping technologies; efficient frontier and optimum portfolios; equilibrium models in the capital markets; Capital Asset Pricing Model (CAPM) and Arbitrage Pricing Model (APM); security analysis and portfolio theory; performance evaluation and efficient market hypothesis.
Prerequisite: FE 501 and FE 507
FE 524 Dynamics of Financial Systems (3+0+0) 3
Financial problems as dynamical systems; simulation as a solution procedure for complex dynamic models; complex nonlinear dynamic phenomena; stochastic dynamic models; system dynamics methodology; stock-flow modeling; policy design and improvement by simulation experiments; financial strategy applications and cases.
Prerequisite: FE 507
FE 526 Decision Analysis (3+0+0) 3
Utility theory; use of judgmental probability; Bayesian decision models; decision trees; probabilistic networks; influence diagrams; value of information; study of strategies; economics of sampling; risk sharing and decisions; implementation of decision models.
FE 532 Risk Analysis and Insurance Pricing (3+0+0) 3
Principles of risk theory; ruin models; credibility premiums and experience rating; operations research techniques in insurance and reinsurance decision making.
FE 534 Life Insurance and Pension Plans (3+0+0) 3
Design and financing of life insurance products and retirement plans in both the private and public sectors; stochastic investment models for life insurance and pension funds; Wilkie’s model.
FE 536 Risk Management in Financial Instituitons (3+0+0) 3
Financial innovation; new types of risk and evolution of risk management products; sources of risk and risk profile; measuring market risk, credit risk, operational and legal risks; analytical models and estimation problems; using and designing derivative instruments to manage risk; securitization, hedging and arbitrage fundamentals; examples and applications of risk management in financial and non-financial institutions.
FE 538 Valuation with Real Options (3+0+0) 3
Traditional capital budgeting; conceptual options framework for capital budgeting; quantifying flexibility in capital budgeting; discrete and continuous time models; interactions among multiple real options; hybrid real options valuation of risky projects; strategic planning and control; compound real options; case studies.
Prerequisite: FE 521
FE 571, 572 Financial Engineering Project (0+0+4) 0
Project undertaken by students under the supervision of a faculty member with a special focus to design a solution procedure for a real-life problem. (A written midterm progress report and a final report required.)
FE 580-599 Special Topics in Financial Engineering (3+0+0) 3
Special topics in financial engineering selected to suit the interests of the individual students.
