Introduction to Financial Engineering and Risk Management

Go to Course: https://www.coursera.org/learn/financial-engineering-intro

Introduction

**Course Review: Introduction to Financial Engineering and Risk Management on Coursera** If you're venturing into the captivating worlds of finance, risk management, or quantitative analysis, the "Introduction to Financial Engineering and Risk Management" course on Coursera is a must-consider stepping stone. This course is part of the Financial Engineering and Risk Management Specialization and offers a comprehensive foundation for understanding fixed income securities, derivatives, and the intricate pricing models that govern them. ### Course Overview From the outset, the course promises a well-structured educational experience, guiding you through fundamental concepts that are essential for the study ahead. The course unfolds over several modules, beginning with a necessary review of mathematical principles encompassing probability and optimization—critical tools that underpin financial engineering. ### Syllabus Breakdown 1. **Pre-Requisite Materials**: The initial module is designed to equip learners with vital mathematical foundations. It dives deep into probabilities and optimization methods, enabling learners to grasp uncertainties and discover optimal solutions. This module sets the tone for the entire course, emphasizing the importance of these mathematical frameworks while preparing students to tackle real-world financial problems. 2. **Introduction to Basic Fixed Income Securities**: The second module transitions into the world of financial instruments. It introduces the principles of pricing, which is crucial for participants interested in understanding how financial products are valued in the market. The focus on fixed income instruments prepares students for more complex financial concepts later in the course. 3. **Introduction to Derivative Securities**: Building on the foundation established, the third module introduces derivative securities that derive value from underlying assets. The exploration of products such as forwards, futures, swaps, and options illustrates their role in modern financial systems. The module also presents the 1-period binomial model—a fundamental framework for pricing derivatives, paving the way for more advanced topics. 4. **Option Pricing in the Multi-Period Binomial Model**: The course progresses to the multi-period binomial model, which enhances the understanding of how to price options over extended timeframes. Students learn to appreciate the transition from simpler models to more complex pricing strategies, including the widely recognized Black-Scholes model. This segment solidifies the learners' analytical skills, especially regarding American options. ### What I Loved - **Comprehensive Structure**: The course is meticulously designed, providing a logical flow from basic concepts to more advanced pricing techniques. Each module builds upon the last, ensuring a solid grasp of the material. - **Interactivity and Community Support**: The inclusion of discussion forums fosters a collaborative learning environment. Learners are encouraged to engage, seek help, and assist peers, enhancing the overall experience. - **Real-World Applicability**: The course content is not just theoretical; it is grounded in practical applications, which is invaluable for those looking to enter the finance industry or enhance their current skill set. ### Who Should Take This Course? This course is ideal for aspiring financial engineers, risk managers, or anyone interested in the analytical side of finance. Regardless of your background—whether you're a business student looking to bolster your finance skills or a professional seeking to pivot careers—this course provides the essential tools required for success in the finance industry. ### Final Recommendation If you're keen on deepening your understanding of financial engineering and risk management, I highly recommend the "Introduction to Financial Engineering and Risk Management" course on Coursera. It is a fantastic blend of essential mathematics and practical financial concepts presented in a clear and engaging format. Enrolling in this course can be the first step toward mastering the complexities of modern finance and equipping yourself with the skills needed in today’s competitive job market.

Syllabus

Course Overview

Welcome to Financial Engineering and Risk Management

Welcome to Week 2! This week, we will cover mathematical foundations that are necessary for the study of future modules. In a nutshell, we will introduce probabilities and optimization. The theory of probability is the mathematical language to characterize uncertainties, e.g. how to describe the chances that the price of a particular stock will go up tomorrow. To make things precise, we need probabilities. Optimization is a set of toolkits that allow us to search for optimal solutions. For example, given a budget constraint, how do we maximize the profit? We need mathematical optimization. Financial engineers apply probabilistic models to capture the regularities of financial products, and apply optimization techniques to optimize their strategies. These mathematical toolkits will serve as a cornerstone for your financial engineering career.

Welcome to Week 3! This week, we officially embark on the journey of financial engineering and risk management. We will start with the fundamentals of financial engineering, i.e. the principles of pricing. In financial markets, given a financial product, how do we calculate its prices? These pricing principles will serve as the cornerstone of our future modules. We will also cover the basics of fixed income instruments, which serve as the building blocks of financial markets. If you get stuck on the quizzes, you should post on the Discussions to ask for help. (And if you finish early, I hope you'll go there to help your fellow classmates as well.)

Welcome to Week 4! This week, we will cover a new family of financial products: derivative securities. Derivative securities, as the name suggests, are financial products that derive their value from some underlying assets, such as interest rates or stocks. The prosperity of modern financial markets is due in large part to the wide variety of derivative securities on the markets such as forwards, futures, swaps, and options as we will introduce in this module. We will also introduce the 1-period binomial model, a simplified framework that allows us to calculate the prices of derivative securities. Despite its simplicity, 1-period binomial model is the building block of more powerful pricing models as we will find out in future modules. As always, if you get stuck on the quizzes, you should post on the Discussions to ask for help. (And if you finish early, I hope you'll go there to help your fellow classmates as well.)

Welcome to Week 5! This week, we will continue from the last module, and extend from the 1-period binomial model to the multi-period binomial model. Multi-period binomial model is nothing but stacking multiple 1-period binomial models together. We will see how this simple construction allows us to price financial products over long horizons. As an illustrative example, we will price the American options using the multi-period model. Moreover, we will cover more advanced pricing models such as the Black Scholes model. We will see how the Black Scholes model is a natural extension of the multi-period binomial model and is widely applicable in practice. As always, if you get stuck on the quizzes, you should post on the Discussions to ask for help. (And if you finish early, I hope you'll go there to help your fellow classmates as well.)