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UCLA MFE curriculum
Total Program Curriculum: 52 units
Course Descriptions:
Fundamentals of Corporate Finance and Accounting (4 units)This course provides students an understanding of the financial statements and tax liabilities of firms. The course also provides an introduction to the key issues facing corporate financial decision makers such as making capital budgeting and investment decisions, designing the capital structure of the firm, minimizing agency costs and the costs of financial distress, the role of financial innovation, capital markets, and the valuation of real options embedded in investment projects, e.g. the option to expand, contract, and shut down operations temporarily.
Fundamentals of Investments (4 units)
This course covers the essentials of asset pricing and portfolio choice. The course begins with standard discounted cash flow approaches and the no-arbitrage framework for valuing financial securities. The basic paradigms of asset pricing such as the CAPM, the APT, and the Fama-French Three-Factor model are also discussed. Dynamic portfolio selection and optimization approaches are developed and illustrated. The course also provides a brief introduction to a number of important asset classes such as equities, corporate bonds, real estate, and venture capital.
Introduction to Stochastic Calculus and Derivatives (4 units)This course covers the economic, statistical, and mathematical foundations of derivatives markets. The course presents the basic discrete-time and continuous-time paradigms used in derivatives finance including an introduction to stochastic processes, stochastic differential equations, Ito's Lemma, and key elements of stochastic calculus. The economic foundations of the Black-Scholes no-arbitrage paradigm are covered including an introduction to Girsanov's theorem and changes of measure, the representation of linear functionals, equivalent martingale measures, risk-neutral valuation, fundamental partial differential equation representations of derivatives prices, market prices of risk, and Feynman-Kac representations of solutions to derivatives prices. The role of market completeness and its implications for the hedging and replication of derivatives will be covered in depth.
Derivatives Markets (4 units)
This course offers an introduction to derivatives markets. Derivatives are both exchange traded and over-the-counter securities. The derivatives markets are the world's largest and most liquid. This course will focus on the organization and role of put and call option markets, futures and forward markets, and their interrelations. The emphasis will be on arbitrage relations, valuation, and hedging with derivatives. The course will also cover the implementation of derivatives trading strategies, the perspective of corporate securities as derivatives, the functions of derivatives in securities markets, and recent innovations in derivatives markets.
Empirical Methods in Finance (4 units)
This course covers the probability and statistical techniques commonly used in quantitative finance. Students use estimation application software in exercises to estimate volatility, correlations, and stability.
Fixed Income Markets (4 units)
This course provides a quantitative approach to fixed-income securities and bond portfolio management with a focus on fixed-income security markets. The course covers the pricing of bonds and fixed-income derivatives, the measurement and hedging of interest rate risk, dynamic models of interest rates, and the management of fixed income portfolio risk.
Computational Methods in Finance (4 units)
This course covers the quantitative and computational tools used in finance. This includes introducing numerical techniques such the implementation of binomial and trinomial option pricing, lattice algorithms for computing derivative prices and hedge ratios, simulation based algorithms for pricing American options, and the numerical solution of the partial differential equations that appear in financial engineering.
Quantitative Asset Management (4 units)This course emphasizes the application of state-of-the-art quantitative techniques to asset management problems. The course covers asset pricing models in depth, portfolio optimization and construction, and dynamic strategies such as pairs trading, long-term and short-term momentum trades, and strategies that address behavioral finance anomalies. The course also discusses major forms of asset management structures such as mutual funds, hedge funds, ETFs, and special investment vehicles, and examines some of the primary types of trading strategies used by these organizations.
Financial Risk Measurement and Management (4 units)
This course examines financial risk measurement and management, including market risk, credit risk, liquidity risk, settlement risk, model risk, volatility risk, and kurtosis risk.
Credit Markets (4 units)
This course provides an introduction to the building and implementation of credit models for use by financial institutions and quantitative investors. The course covers the basics of corporate debt securities and provides an in-depth introduction to the credit derivatives markets. Structured credit products such as both cash and synthetic collateralized debt obligations (CDOs) are discussed.
Financial Institutions Seminar
These noncredit seminars on financial institutions consist of a series of presentations by various practitioners on topics relate to the practice of financial engineering. Examples of topics covered include discussions on how risk management is implemented at various investment banks, on how quantitative asset management is performed at equity and fixed income investment firms, and on current trends in the use of quantitative analysis and techniques among hedge funds and other institutional investors.
Applied Finance Project (8 units total)
Every MFE students is required to complete an applied quantitative finance project that explores a quantitative finance problem that might be met in practice and involves the development or use of some of the tools developed in the MFE program. Participation requires prior approval of the project by the supervising faculty member.
Special Topics in Financial Engineering (4 units)A Special Topics in Financial Engineering course may replace a specific markets class in any given year. Special Topics can change from year to year. This course consists of an in-depth examination of problems or issues in an area of current concern in financial engineering. Past topics have included Asset Backed Securities Markets and Behavioral Finance.
Course Descriptions:
Fundamentals of Corporate Finance and Accounting (4 units)This course provides students an understanding of the financial statements and tax liabilities of firms. The course also provides an introduction to the key issues facing corporate financial decision makers such as making capital budgeting and investment decisions, designing the capital structure of the firm, minimizing agency costs and the costs of financial distress, the role of financial innovation, capital markets, and the valuation of real options embedded in investment projects, e.g. the option to expand, contract, and shut down operations temporarily.
Fundamentals of Investments (4 units)
This course covers the essentials of asset pricing and portfolio choice. The course begins with standard discounted cash flow approaches and the no-arbitrage framework for valuing financial securities. The basic paradigms of asset pricing such as the CAPM, the APT, and the Fama-French Three-Factor model are also discussed. Dynamic portfolio selection and optimization approaches are developed and illustrated. The course also provides a brief introduction to a number of important asset classes such as equities, corporate bonds, real estate, and venture capital.
Introduction to Stochastic Calculus and Derivatives (4 units)This course covers the economic, statistical, and mathematical foundations of derivatives markets. The course presents the basic discrete-time and continuous-time paradigms used in derivatives finance including an introduction to stochastic processes, stochastic differential equations, Ito's Lemma, and key elements of stochastic calculus. The economic foundations of the Black-Scholes no-arbitrage paradigm are covered including an introduction to Girsanov's theorem and changes of measure, the representation of linear functionals, equivalent martingale measures, risk-neutral valuation, fundamental partial differential equation representations of derivatives prices, market prices of risk, and Feynman-Kac representations of solutions to derivatives prices. The role of market completeness and its implications for the hedging and replication of derivatives will be covered in depth.
Derivatives Markets (4 units)
This course offers an introduction to derivatives markets. Derivatives are both exchange traded and over-the-counter securities. The derivatives markets are the world's largest and most liquid. This course will focus on the organization and role of put and call option markets, futures and forward markets, and their interrelations. The emphasis will be on arbitrage relations, valuation, and hedging with derivatives. The course will also cover the implementation of derivatives trading strategies, the perspective of corporate securities as derivatives, the functions of derivatives in securities markets, and recent innovations in derivatives markets.
Empirical Methods in Finance (4 units)
This course covers the probability and statistical techniques commonly used in quantitative finance. Students use estimation application software in exercises to estimate volatility, correlations, and stability.
Fixed Income Markets (4 units)
This course provides a quantitative approach to fixed-income securities and bond portfolio management with a focus on fixed-income security markets. The course covers the pricing of bonds and fixed-income derivatives, the measurement and hedging of interest rate risk, dynamic models of interest rates, and the management of fixed income portfolio risk.
Computational Methods in Finance (4 units)
This course covers the quantitative and computational tools used in finance. This includes introducing numerical techniques such the implementation of binomial and trinomial option pricing, lattice algorithms for computing derivative prices and hedge ratios, simulation based algorithms for pricing American options, and the numerical solution of the partial differential equations that appear in financial engineering.
Quantitative Asset Management (4 units)This course emphasizes the application of state-of-the-art quantitative techniques to asset management problems. The course covers asset pricing models in depth, portfolio optimization and construction, and dynamic strategies such as pairs trading, long-term and short-term momentum trades, and strategies that address behavioral finance anomalies. The course also discusses major forms of asset management structures such as mutual funds, hedge funds, ETFs, and special investment vehicles, and examines some of the primary types of trading strategies used by these organizations.
Financial Risk Measurement and Management (4 units)
This course examines financial risk measurement and management, including market risk, credit risk, liquidity risk, settlement risk, model risk, volatility risk, and kurtosis risk.
Credit Markets (4 units)
This course provides an introduction to the building and implementation of credit models for use by financial institutions and quantitative investors. The course covers the basics of corporate debt securities and provides an in-depth introduction to the credit derivatives markets. Structured credit products such as both cash and synthetic collateralized debt obligations (CDOs) are discussed.
Financial Institutions Seminar
These noncredit seminars on financial institutions consist of a series of presentations by various practitioners on topics relate to the practice of financial engineering. Examples of topics covered include discussions on how risk management is implemented at various investment banks, on how quantitative asset management is performed at equity and fixed income investment firms, and on current trends in the use of quantitative analysis and techniques among hedge funds and other institutional investors.
Applied Finance Project (8 units total)
Every MFE students is required to complete an applied quantitative finance project that explores a quantitative finance problem that might be met in practice and involves the development or use of some of the tools developed in the MFE program. Participation requires prior approval of the project by the supervising faculty member.
Special Topics in Financial Engineering (4 units)A Special Topics in Financial Engineering course may replace a specific markets class in any given year. Special Topics can change from year to year. This course consists of an in-depth examination of problems or issues in an area of current concern in financial engineering. Past topics have included Asset Backed Securities Markets and Behavioral Finance.
Berkeley MFE Curriculum
Curriculum
Designed by a world-class business school, the MFE Program's curriculum challenges you to think of innovative ways to integrate quantitative methods with the theoretical framework and institutional settings in which they are applied. Taught by a renowned faculty comprised of prominent scholars and industry luminaries, MFE courses are anchored in cutting-edge research and best practices in financial engineering.
The Berkeley MFE Program is a one-year program beginning in March, with an internship period from October to January, and graduation the following March.
Degree Requirements
MFE students must successfully complete 28 units of coursework (1 unit = 15 class hours), including the Morgan Stanley Applied Finance Project, plus an internship or on-site project. The 10- to 12-week internship project is a required condition for graduation.
Orientation
March 21 – 24, 2011
The program kicks off with an informative and social week-long orientation. During the week-long introduction to the program, you'll get to know other new students and gain a sense of what the classroom experience will hold. The orientation features team-building exercises and lectures, and workshops on special topics, including a thorough overview of the job market and career resources.
Spring Term
March 28 – May 20, 2011 (8 weeks)
Fundamentals of Financial Economics
MFE 230A (2 units) - Mark Rubinstein
This course covers the basic theories of asset pricing. It begins with the standard discounted cash flow analysis and generalizes this approach to develop the No Arbitrage Pricing technique for security valuation. Applications including fixed income securities, derivatives and contingent claims will be considered. The course will then examine the basic principles of optimal portfolio theory and consider special models of equilibrium asset pricing, including the Capital Asset Pricing Model and related Factor Models. Applications to equity pricing and portfolio performance evaluation will be explored. Programming and analytical exercises will be assigned.
Empirical Methods in Finance
MFE 230E (2 units) - Ross Valkanov
This course reviews probability and statistical techniques commonly used in quantitative finance. It includes a review of normal, log-normal, and CEV distributions. This course covers estimation and non-parametric techniques commonly used in finance (MLE, GMM, GARCH) and introduces students to financial databases and to estimation application software for exercises in estimating volatilities and correlations and their stability.
Introduction to Stochastic Calculus
MFE 230Q (2 units) - Alexei Tchistyi
This course introduces the concepts and tools of stochastic calculus as required for effective pricing of complex financial derivatives in continuous time. The course stresses the practical applications of stochastic differential equations, Ito integrals, and measure transformations as required in advanced financial engineering practice and for the understanding of asset pricing theory. The material discussed in this course is used extensively in the some of the more advanced classes.
Credit Risk: Economic Concepts
MFE 230VA (1 unit) - Amnon Levy and Jing Zhang
This course provides an overview at a conceptual level of the techniques currently used to model credit risk. Topics covered include default
probabilities, loss given default, correlation, credit portfolio analytics, bond valuation, loan valuation, and credit derivative valuation. This course
will serve as an introduction to the field of credit risk modeling with a focus on how credit risk modeling and analysis is done in practice. This
course will lay the foundation for further study into the more technical aspects of building credit risk models.
Financial Institutions Seminar I
Individuals from financial services firms will describe the work of financial engineers in their firms and the kinds of skills and personal attributes
they are seeking for this work.
Summer Term
June 6 – July 29, 2011 (8 weeks)
Derivatives: Economic Concepts
MFE 230C (2 units) - Navin Chopra
This course covers the use and pricing of derivatives - from the basic features of futures and options, to binomial and trinomial option pricing and the Black-Scholes formula, to implied binomial trees, to volatility measurement, and to dynamic trading strategies and extensions to a wide variety of exotic options. It emphasizes economic intuition and understanding over detailed quantitative analysis. Important quantitative techniques and arguments are completely developed but with the simplest possible use of mathematics. Students will also gain practical experience though a class project in the programming, modeling and analysis of derivatives.
Derivatives: Quantitative Methods
MFE 230D (2 units) - Domingo Tavella
This course emphasizes the pricing of derivatives in continuous time, from the formulation of the pricing problem to the implementation of computational and numerical solution techniques. The course consists of three parts. In the first part, asset pricing theory is used to set up the pricing problem for a wide range of instruments with features such as early exercise, jumps, and path dependencies. The second part focuses on simulation methods for pricing both European and early exercise derivatives. The third part shows how to effectively use advanced finite difference techniques for solving a wide array of pricing problems.
Fixed Income Markets
MFE 230I (2 units) - Richard Stanton
This course provides a quantitative approach to fixed income securities and bond portfolio management. The focus is on fixed income security markets, pricing and uses for portfolio management or for hedging interest rate risk. The course covers bond mathematics, term structure measurement and theory, immunization techniques and the modern theory of bond pricing, including the pricing of credit-risky bonds. It also covers derivative instruments (futures, swaps, options, exotic instruments). There will be extensive use of application and programming exercises.
Accounting and Taxation of Derivatives
MFE 230W (1 unit) - Suneel Udpa
The course provides a framework to allow students the understanding of the accounting and tax issues related to derivatives and hedging. It also fulfills the needs of students seeking jobs in the corporate sector and/or seeking securities structuring assignments in the financial services< sector. A basic understanding of financial accounting is required.
Financial Institutions Seminar II
This is a weekly seminar in which informed observers and practitioners discuss trends in the provision of financial services, the information and computing systems being adopted, new product developments, regulatory issues, and similar topics.
Fall Term
August 15 – October 7, 2011 (8 weeks)
Required Course: (8 weeks)
Financial Risk Measurement and Management
MFE 230H (2 units) - Yuqing (Jeff) Shen
This course examines financial risk measurement and management, including market risk, credit risk, liquidity risk, settlement risk, model risk, volatility risk, kurtosis risk and other types of financial risks. It includes risk measurement techniques for different types of contracts and portfolios (equity, fixed income, currency) such as duration, portfolio Beta, factor sensitivities, Value at Risk™, dynamic portfolio distribution analysis and extreme value analysis. It also includes risk management techniques for different types of problems such as trading desk risk management, total portfolio market exposure limits, counterpart credit exposure limits, and funding liquidity exposure limits.
Choose 5 units of electives*:
Advanced Computational Finance
MFE 230R (2 units) - Domingo Tavella
This course builds on the techniques learned in Quantitative Methods for Derivative Pricing. The focus of the course is a deeper analysis of numerical and computational issues in pricing and calibration. The orientation of the course is hands-on, with heavy use of computational techniques applied to case projects. Classroom activity will combine lectures with detailed discussion of case projects. The primary objective of this course is to prepare students to tackle the latest challenges in quantitative pricing that they are likely to encounter in cutting edge financial institutions. The material presented will familiarize students with state of the art computational strategies for the calibration of pricing frameworks, and for the pricing of complex and multidimensional derivatives. The course will be based on case projects, representative of real life situations as encountered in top trading operations in equities and fixed income. Some of the topics of emphasis will include implying local volatility functions, understanding the role of stochastic volatility models, pricing structures with complex embedded options, and credit
derivatives.
Financial Innovation in a Global Marketplace
MFE 230J (1 unit) - John O'Brien
Students will participate in a series of case studies illustrating some of the major successes and failures of modern financial innovation.
The Design of Securities for Corporate Financing
MFE 230F (1 unit) - Mukesh Bajaj
The view of corporate finance presented in this course stems from an analysis of two related issues: 1) how firms create value, and 2) how corporate finance facilitates the process of value creation. As part of this process, we will examine the factors that help determine financial strategy, thereby putting the design of financial packages in perspective. In particular, the course focuses on how corporate financing needs lead to the need for financial engineering and spur financial innovation. The course will use lectures and case analysis.
Credit Risk: Quantitative Modeling
MFE 230VB (1 unit) - Deepak Agrawal
Focuses on the techniques currently used to model credit risk. The course will cover default probabilities, loss given default, correlation, credit portfolio analytics, bond valuation, loan valuation, and credit derivative valuation. Emphasis will be placed on model building, model validation, and interpreting model output. Students will be required to do some high-level programming in a package such as Matlab. Some empirical testing exercises will also be part of the project work. Students will gain exposure to the practical challenges associated with building, testing, and using credit risk models currently used by banks and asset managers.
International Equity & Currency Markets
MFE 230G (2 units) - Michael Melvin and Ron Kahn
This course reviews various aspects of equity and currency markets and provides models of and historical evidence on the average returns and volatility of returns on equities, on the trade-to-trade equity price behavior, on trading volume and patterns, and on primary financial risks. The determination of spot and forward exchange rates and the volatility, volume, high frequency dynamics, and dealer behavior in currency markets are considered. Practical considerations involved in the implementation of various strategies are considered.
Independent Study
MFE293 (1 - 3 units) - Choose an advisor
The Independent Study course is your opportunity to do research in an area of interest to you, in which there are no existing courses.
Internship Period
October 12, 2010 – January 15, 2011 (12 weeks)
The Internship/Special Topics in Finance project is a required condition for graduation. The internship or approved, on-site project takes place from mid-October to mid-January. Students must enroll in MFE230N, the Internship/Special Topics in Finance course for the fall term.
Because of the school's reputation and close ties to the best firms, Haas has an exceptional record of helping students secure internships, consistently placing nearly 100 percent of students each year.
Winter Term
January 17 – March 9, 2012 (8 weeks)
Required Courses:
Applied Finance Project
MFE 230O (1 - 3 units) - Eric Reiner
This is an applied project exploring an unresolved finance problem that is met in practice and involves the development or use of a quantitative financial technique. Participation requires prior approval of the supervising faculty member
Choose 4-6 units of electives*:
Asset-Backed Security Markets
MFE 230M (2 units) - Nancy Wallace and Dwight Jaffee
This course extends the study of fixed-income securities to advanced topics on mortgage and other asset-backed securities. Students will apply the latest tools in fixed-income analysis and classic models in economics and finance to a critical evaluation of the structure and operation of the securitized bond markets. The course covers the basic mechanics of structuring deals for mortgage-related securities, credit cards, leases, and other debt markets and the risk management techniques employed in the securitization process for these assets. The course will also consider the valuation of pooled assets and derivative bonds using both Monte Carlo and option pricing techniques, an analysis of the trading strategies that are employed in these markets, and a study of the market microstructure of asset-backed security markets.
Dynamic Asset Management
MFE 230K (2 units) - Hayne Leland
Covers the strategies for achieving various investment objectives for portfolios/ instruments (equity, fixed income, currency, mortgages, non-traded assets) and applications (investment funds, pension funds, insurance companies, bank investment portfolios).
Behavioral Finance
MFE 230S (1 units) - Greg La Blanc
This course covers elements of behavioral decision theory and its implication in financial markets. Focus is on the psychological processes by which people make judgments and decisions, and the heuristics and biases associated with these decisions.
Real Options
MFE 230L (2 units) - TBA
(Note: the Real Options course will not be offered in 2012)An introduction to recent advances in real option theory, this course covers a wide range of phenomena including: the "convenience yield" in commodity futures prices, the value of pure growth firms (firms with no current earnings), the optimal time for a firm to invest or liquidate, and valuing and optimally undertaking staged investment decisions. The course also introduces students to recent advances in theoretical asset pricing models that use an option-based approach to value a firm based on its fundamentals. The characteristics of and markets for commodity derivatives will be covered. Derivatives I and II are prerequisites for this course.
Topics in Financial Engineering
The Topics course can change from year to year. For the 2010-2011 term:
High-Frequency Finance
MFE 230T (1 units) - Julia Belford
This course covers topics in high frequency finance and discusses recent developments in market microstructure, electronic trading and data modeling. The course is aimed at students who are considering careers in financial engineering or quantitative trading at institutions involved in automated securities trading on electronic platforms.
Optimization Models in Finance
MFE 230T (2 units) - Laurent El Ghaoui
This course proposes a guided tour through optimization models arising in practical Finance. These problems include ones that are traditionally associated with optimization, including asset and liability management, asset pricing, and portfolio optimization. We also describe optimization models arising in model calibration, prediction and estimation, and risk analysis. The course includes some recent approaches to the analysis of other kinds of financial data, such as text (financial news) data.
Independent Study
MFE293 (1 - 3 units) - Choose an advisor
The Independent Study course is your opportunity to do research in an area of interest to you, in which there are no existing courses.
Financial Practice Seminars
MFE students are encouraged to attend weekly discussions held by finance practitioners. In the first term speakers discuss jobs available to graduates of the MFE and the skills needed to contribute to a firm's mission. In the second term, speakers provide insights into the way the financial world is changing: new products and needs; evolving data and information systems; and similar topics.
The Morgan Stanley Applied Finance Project
In addition to the internship, MFE students are required to complete an applied finance project that develops or uses quantitative finance tools and techniques learned in the program or internship. Students have the option of completing a one-credit project or three-credit project. The $5,000 Morgan Stanley Applied Finance Project Award is given to the best three-credit project.
Internship Program
While not required for graduation, students are encouraged to have an internship during the break from mid-October to mid-January. The MFE Office and the Haas Career center work with students to locate opportunities for students.
*Please note that not all electives will be offered every year. This schedule is tentative and will be updated every term.
Designed by a world-class business school, the MFE Program's curriculum challenges you to think of innovative ways to integrate quantitative methods with the theoretical framework and institutional settings in which they are applied. Taught by a renowned faculty comprised of prominent scholars and industry luminaries, MFE courses are anchored in cutting-edge research and best practices in financial engineering.
The Berkeley MFE Program is a one-year program beginning in March, with an internship period from October to January, and graduation the following March.
Degree Requirements
MFE students must successfully complete 28 units of coursework (1 unit = 15 class hours), including the Morgan Stanley Applied Finance Project, plus an internship or on-site project. The 10- to 12-week internship project is a required condition for graduation.
Orientation
March 21 – 24, 2011
The program kicks off with an informative and social week-long orientation. During the week-long introduction to the program, you'll get to know other new students and gain a sense of what the classroom experience will hold. The orientation features team-building exercises and lectures, and workshops on special topics, including a thorough overview of the job market and career resources.
Spring Term
March 28 – May 20, 2011 (8 weeks)
Fundamentals of Financial Economics
MFE 230A (2 units) - Mark Rubinstein
This course covers the basic theories of asset pricing. It begins with the standard discounted cash flow analysis and generalizes this approach to develop the No Arbitrage Pricing technique for security valuation. Applications including fixed income securities, derivatives and contingent claims will be considered. The course will then examine the basic principles of optimal portfolio theory and consider special models of equilibrium asset pricing, including the Capital Asset Pricing Model and related Factor Models. Applications to equity pricing and portfolio performance evaluation will be explored. Programming and analytical exercises will be assigned.
Empirical Methods in Finance
MFE 230E (2 units) - Ross Valkanov
This course reviews probability and statistical techniques commonly used in quantitative finance. It includes a review of normal, log-normal, and CEV distributions. This course covers estimation and non-parametric techniques commonly used in finance (MLE, GMM, GARCH) and introduces students to financial databases and to estimation application software for exercises in estimating volatilities and correlations and their stability.
Introduction to Stochastic Calculus
MFE 230Q (2 units) - Alexei Tchistyi
This course introduces the concepts and tools of stochastic calculus as required for effective pricing of complex financial derivatives in continuous time. The course stresses the practical applications of stochastic differential equations, Ito integrals, and measure transformations as required in advanced financial engineering practice and for the understanding of asset pricing theory. The material discussed in this course is used extensively in the some of the more advanced classes.
Credit Risk: Economic Concepts
MFE 230VA (1 unit) - Amnon Levy and Jing Zhang
This course provides an overview at a conceptual level of the techniques currently used to model credit risk. Topics covered include default
probabilities, loss given default, correlation, credit portfolio analytics, bond valuation, loan valuation, and credit derivative valuation. This course
will serve as an introduction to the field of credit risk modeling with a focus on how credit risk modeling and analysis is done in practice. This
course will lay the foundation for further study into the more technical aspects of building credit risk models.
Financial Institutions Seminar I
Individuals from financial services firms will describe the work of financial engineers in their firms and the kinds of skills and personal attributes
they are seeking for this work.
Summer Term
June 6 – July 29, 2011 (8 weeks)
Derivatives: Economic Concepts
MFE 230C (2 units) - Navin Chopra
This course covers the use and pricing of derivatives - from the basic features of futures and options, to binomial and trinomial option pricing and the Black-Scholes formula, to implied binomial trees, to volatility measurement, and to dynamic trading strategies and extensions to a wide variety of exotic options. It emphasizes economic intuition and understanding over detailed quantitative analysis. Important quantitative techniques and arguments are completely developed but with the simplest possible use of mathematics. Students will also gain practical experience though a class project in the programming, modeling and analysis of derivatives.
Derivatives: Quantitative Methods
MFE 230D (2 units) - Domingo Tavella
This course emphasizes the pricing of derivatives in continuous time, from the formulation of the pricing problem to the implementation of computational and numerical solution techniques. The course consists of three parts. In the first part, asset pricing theory is used to set up the pricing problem for a wide range of instruments with features such as early exercise, jumps, and path dependencies. The second part focuses on simulation methods for pricing both European and early exercise derivatives. The third part shows how to effectively use advanced finite difference techniques for solving a wide array of pricing problems.
Fixed Income Markets
MFE 230I (2 units) - Richard Stanton
This course provides a quantitative approach to fixed income securities and bond portfolio management. The focus is on fixed income security markets, pricing and uses for portfolio management or for hedging interest rate risk. The course covers bond mathematics, term structure measurement and theory, immunization techniques and the modern theory of bond pricing, including the pricing of credit-risky bonds. It also covers derivative instruments (futures, swaps, options, exotic instruments). There will be extensive use of application and programming exercises.
Accounting and Taxation of Derivatives
MFE 230W (1 unit) - Suneel Udpa
The course provides a framework to allow students the understanding of the accounting and tax issues related to derivatives and hedging. It also fulfills the needs of students seeking jobs in the corporate sector and/or seeking securities structuring assignments in the financial services< sector. A basic understanding of financial accounting is required.
Financial Institutions Seminar II
This is a weekly seminar in which informed observers and practitioners discuss trends in the provision of financial services, the information and computing systems being adopted, new product developments, regulatory issues, and similar topics.
Fall Term
August 15 – October 7, 2011 (8 weeks)
Required Course: (8 weeks)
Financial Risk Measurement and Management
MFE 230H (2 units) - Yuqing (Jeff) Shen
This course examines financial risk measurement and management, including market risk, credit risk, liquidity risk, settlement risk, model risk, volatility risk, kurtosis risk and other types of financial risks. It includes risk measurement techniques for different types of contracts and portfolios (equity, fixed income, currency) such as duration, portfolio Beta, factor sensitivities, Value at Risk™, dynamic portfolio distribution analysis and extreme value analysis. It also includes risk management techniques for different types of problems such as trading desk risk management, total portfolio market exposure limits, counterpart credit exposure limits, and funding liquidity exposure limits.
Choose 5 units of electives*:
Advanced Computational Finance
MFE 230R (2 units) - Domingo Tavella
This course builds on the techniques learned in Quantitative Methods for Derivative Pricing. The focus of the course is a deeper analysis of numerical and computational issues in pricing and calibration. The orientation of the course is hands-on, with heavy use of computational techniques applied to case projects. Classroom activity will combine lectures with detailed discussion of case projects. The primary objective of this course is to prepare students to tackle the latest challenges in quantitative pricing that they are likely to encounter in cutting edge financial institutions. The material presented will familiarize students with state of the art computational strategies for the calibration of pricing frameworks, and for the pricing of complex and multidimensional derivatives. The course will be based on case projects, representative of real life situations as encountered in top trading operations in equities and fixed income. Some of the topics of emphasis will include implying local volatility functions, understanding the role of stochastic volatility models, pricing structures with complex embedded options, and credit
derivatives.
Financial Innovation in a Global Marketplace
MFE 230J (1 unit) - John O'Brien
Students will participate in a series of case studies illustrating some of the major successes and failures of modern financial innovation.
The Design of Securities for Corporate Financing
MFE 230F (1 unit) - Mukesh Bajaj
The view of corporate finance presented in this course stems from an analysis of two related issues: 1) how firms create value, and 2) how corporate finance facilitates the process of value creation. As part of this process, we will examine the factors that help determine financial strategy, thereby putting the design of financial packages in perspective. In particular, the course focuses on how corporate financing needs lead to the need for financial engineering and spur financial innovation. The course will use lectures and case analysis.
Credit Risk: Quantitative Modeling
MFE 230VB (1 unit) - Deepak Agrawal
Focuses on the techniques currently used to model credit risk. The course will cover default probabilities, loss given default, correlation, credit portfolio analytics, bond valuation, loan valuation, and credit derivative valuation. Emphasis will be placed on model building, model validation, and interpreting model output. Students will be required to do some high-level programming in a package such as Matlab. Some empirical testing exercises will also be part of the project work. Students will gain exposure to the practical challenges associated with building, testing, and using credit risk models currently used by banks and asset managers.
International Equity & Currency Markets
MFE 230G (2 units) - Michael Melvin and Ron Kahn
This course reviews various aspects of equity and currency markets and provides models of and historical evidence on the average returns and volatility of returns on equities, on the trade-to-trade equity price behavior, on trading volume and patterns, and on primary financial risks. The determination of spot and forward exchange rates and the volatility, volume, high frequency dynamics, and dealer behavior in currency markets are considered. Practical considerations involved in the implementation of various strategies are considered.
Independent Study
MFE293 (1 - 3 units) - Choose an advisor
The Independent Study course is your opportunity to do research in an area of interest to you, in which there are no existing courses.
Internship Period
October 12, 2010 – January 15, 2011 (12 weeks)
The Internship/Special Topics in Finance project is a required condition for graduation. The internship or approved, on-site project takes place from mid-October to mid-January. Students must enroll in MFE230N, the Internship/Special Topics in Finance course for the fall term.
Because of the school's reputation and close ties to the best firms, Haas has an exceptional record of helping students secure internships, consistently placing nearly 100 percent of students each year.
Winter Term
January 17 – March 9, 2012 (8 weeks)
Required Courses:
Applied Finance Project
MFE 230O (1 - 3 units) - Eric Reiner
This is an applied project exploring an unresolved finance problem that is met in practice and involves the development or use of a quantitative financial technique. Participation requires prior approval of the supervising faculty member
Choose 4-6 units of electives*:
Asset-Backed Security Markets
MFE 230M (2 units) - Nancy Wallace and Dwight Jaffee
This course extends the study of fixed-income securities to advanced topics on mortgage and other asset-backed securities. Students will apply the latest tools in fixed-income analysis and classic models in economics and finance to a critical evaluation of the structure and operation of the securitized bond markets. The course covers the basic mechanics of structuring deals for mortgage-related securities, credit cards, leases, and other debt markets and the risk management techniques employed in the securitization process for these assets. The course will also consider the valuation of pooled assets and derivative bonds using both Monte Carlo and option pricing techniques, an analysis of the trading strategies that are employed in these markets, and a study of the market microstructure of asset-backed security markets.
Dynamic Asset Management
MFE 230K (2 units) - Hayne Leland
Covers the strategies for achieving various investment objectives for portfolios/ instruments (equity, fixed income, currency, mortgages, non-traded assets) and applications (investment funds, pension funds, insurance companies, bank investment portfolios).
Behavioral Finance
MFE 230S (1 units) - Greg La Blanc
This course covers elements of behavioral decision theory and its implication in financial markets. Focus is on the psychological processes by which people make judgments and decisions, and the heuristics and biases associated with these decisions.
Real Options
MFE 230L (2 units) - TBA
(Note: the Real Options course will not be offered in 2012)An introduction to recent advances in real option theory, this course covers a wide range of phenomena including: the "convenience yield" in commodity futures prices, the value of pure growth firms (firms with no current earnings), the optimal time for a firm to invest or liquidate, and valuing and optimally undertaking staged investment decisions. The course also introduces students to recent advances in theoretical asset pricing models that use an option-based approach to value a firm based on its fundamentals. The characteristics of and markets for commodity derivatives will be covered. Derivatives I and II are prerequisites for this course.
Topics in Financial Engineering
The Topics course can change from year to year. For the 2010-2011 term:
High-Frequency Finance
MFE 230T (1 units) - Julia Belford
This course covers topics in high frequency finance and discusses recent developments in market microstructure, electronic trading and data modeling. The course is aimed at students who are considering careers in financial engineering or quantitative trading at institutions involved in automated securities trading on electronic platforms.
Optimization Models in Finance
MFE 230T (2 units) - Laurent El Ghaoui
This course proposes a guided tour through optimization models arising in practical Finance. These problems include ones that are traditionally associated with optimization, including asset and liability management, asset pricing, and portfolio optimization. We also describe optimization models arising in model calibration, prediction and estimation, and risk analysis. The course includes some recent approaches to the analysis of other kinds of financial data, such as text (financial news) data.
Independent Study
MFE293 (1 - 3 units) - Choose an advisor
The Independent Study course is your opportunity to do research in an area of interest to you, in which there are no existing courses.
Financial Practice Seminars
MFE students are encouraged to attend weekly discussions held by finance practitioners. In the first term speakers discuss jobs available to graduates of the MFE and the skills needed to contribute to a firm's mission. In the second term, speakers provide insights into the way the financial world is changing: new products and needs; evolving data and information systems; and similar topics.
The Morgan Stanley Applied Finance Project
In addition to the internship, MFE students are required to complete an applied finance project that develops or uses quantitative finance tools and techniques learned in the program or internship. Students have the option of completing a one-credit project or three-credit project. The $5,000 Morgan Stanley Applied Finance Project Award is given to the best three-credit project.
Internship Program
While not required for graduation, students are encouraged to have an internship during the break from mid-October to mid-January. The MFE Office and the Haas Career center work with students to locate opportunities for students.
*Please note that not all electives will be offered every year. This schedule is tentative and will be updated every term.
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