Information on The Program of Master’s in Financial Engineering in

University of California, Berkeley (MFE Global Ranking No. 1）

 

1.      Introductiuon

2.      Pre-Program course：Math, C++ Programming & Statistics

3.      Curriculum，Course Description & Link

4.      Related Resouces in Financial Engineering

1.      Introduction (http://mfe.haas.berkeley.edu/index.html )

Students in the MFE program learn to employ theoretical finance and computer modeling skills to make pricing, hedging, trading and portfolio management decisions. Courses and projects emphasize the practical applications of these skills.

Graduates of the Master's in Financial Engineering are prepared for careers in:

·             Investment Banking

·             Corporate Strategic Planning

·             Risk Management

·             Primary and Derivative Securities Valuation

·             Financial Information Systems Management

·             Portfolio Management

·             Securities Trading

2.      Pre-Program courses

The MFE program offers pre-program courses specifically tailored to the program in order to help admitted students and prospective students review the concepts necessary to be successful in the MFE program. We currently offer the following courses:

2.1 Math Foundations for Financial Engineers  http://mfe.haas.berkeley.edu/download/preprogram_math_syllabus.pdf  

2.2 C++ Programming for Financial Engineers http://mfe.haas.berkeley.edu/c.html 

2.3 Statistics for Financial Engineers  http://mfe.haas.berkeley.edu/download/preprogram_statistics_syllabus.pdf   

 

3. Curriculum (March 24, 2008 - March 13, 2009)

The full program consists of 28 required units including an
Applied Finance Project (1 unit = 15 class hours).

Please note that not all electives will be offered every year. This schedule is tentative and will be updated every term.

Spring 2008: March 24 - May 23, 2008 (8 weeks)
Fundamentals of Financial Economics (2 units) - Mark Rubinstein
Empirical Methods in Finance (3 units) - Rossen Valkanov
Introduction to Stochastic Calculus (2 units) - Robert Goldstein
Financial Institutions Seminar I

Summer 2008: June 2 - July 31, 2008 (8 weeks)
Derivatives: Economic Concepts (2 units) - Mark Rubinstein
Derivatives: Quantitative Methods (2 units) - Domingo Tavella
Fixed Income Markets (2 units) - Francis Longstaff
Accounting and Taxation of Derivatives (1 unit) - Suneel Udpa
Financial Institutions Seminar II

Fall 2008: August 11, 2008 - October 10, 2008 (8 weeks)

Required Course:

Financial Risk Measurement and Management (2 units) - Philippe Jorion

Choose 5 units of electives:

Advanced Computational Finance (2 units) - Domingo Tavella
Success and Failure in Financial Innovation (1 unit) - John O'Brien
The Design of Securities for Corporate Financing (1 unit) - Mukesh Bajaj
Credit Risk Modeling (2 units) - Jeffrey Bohn
Equity & Currency Markets (2 units) - Richard Meese and Ron Kahn

Internship Period 2008-2009:

October 13, 2008 - January 11, 2009 (12 weeks)

The Internship/Special Topics in Finance project begins October 15, 2007 and ends on January 11, 2008. Students must enroll in MFE230N, the Internship/Special Topics in Finance course for the fall term.

Winter 2009: January 12 - March 13, 2009 (8 weeks)
Choose 7 units of coursework:

Asset-backed Security Markets (2 units) - Nancy Wallace and Dwight Jaffee
Dynamic Asset Management (2 units) - Hayne Leland
Behavioral Finance (2 units) - Terry Odean
Real Options (2 units)*
Applied Finance Project (Required) (1 - 3 units)
Independent Study (1 - 3 units) - Richard Stanton and Nancy Wallace

*The Real Options course is not offered each year and is not scheduled to be offered in Winter 2009.

The MFE program requires satisfactory completion of 28 units of coursework plus an internship or on-site project. In addition to coursework, the MFE educational experience includes the following:

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.

Applied Finance Project: 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.

Internship Program: 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.

 

Course Description & Link

1. Fundamentals of Financial Economics ( 2 units )
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. http://finance.wharton.upenn.edu/courses/Syllabi/2006fALL/jwachter-fnce911-06c.pdf  

 

2. Empirical Methods in Finance ( 3 units )
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.

http://finance.wharton.upenn.edu/courses/Syllabi/2008SPRING/yaron-934-08A.pdf  

Textbook I suggested:

1.     Campbell, Lo and MacKinlay,(1997)”THE ECONOMETRICS OF FINANCIAL MARKETS”, Princeton University Press. http://press.princeton.edu/titles/5904.html 

2.     Time series for macroeconomics and finance:http://faculty.chicagogsb.edu/john.cochrane/research/Papers/time_series_book.pdf

Online Notes: http://home.uchicago.edu/~weijiang/finmath.html  http://pages.stern.nyu.edu/~rengle/courses/B303352/Fall%202004%20Course%20Syllabus.doc

3. Introduction to Stochastic Calculus (2 units)

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.

Textbook recommended (Wharton): Taylor and Karlin, An Introduction to Stochastic Modeling, 3rd ed., Academic Press

Online handouts: http://www-finmath.uchicago.edu/  

Stochastic Calculus and Finance syllabus

This course is an introduction to stochastic calculus as it is relevant to the pricing and hedging of options and other derivative securities. It is offered in collaboration by the Department of Statistics and the master's program in Mathematical Finance. The main objectives of the course are (1) to provide a working knowledge of the Ito stochastic calculus, and (2) to show how it is used to obtain arbitrage prices and hedging strategies for various financial derivative securities, including forwards, European contingent claims, barrier options, and simple foreign currency options.

The course has a sequel in Winter quarter, Statistics 391/Mathematical Finance 346. Stat 390-391 are part of the Statistics and Finance program. Math Fin 345-346 are part of the Master's program in Financial Mathematics.

Topics to be Covered: 

Discrete Pricing Models Discrete Multiperiod Models Binomial Trees Risk Neutral Measures Discrete Martingales Continuous Stochastic Calculus Wiener Process (Brownian Motion) Ito Integral and Ito Formula Girsanov Formula Continuous--Time Martingales Martingale Representation Theorem Ito Processes and PDEs Black--Scholes Theory Arbitrage Pricing Black--Scholes Formulae Risk Neutral Measures Numeraire Invariance Market Completeness Extensions of the Black-Sholes theory Barrier Options Currency Options Prerequisites: 

Stat 390: consent of instructor (enforced) Math 345: enrollment in the Financial Mathematics Program both: The preparatory course offered in September, or equivalent Texts: 

Course Notes: will be posted Recommended Books: S. Neftci . Introduction to the Mathematics of Financial Derivatives J. C. Hull . Options, Futures, and Other Derivatives Darrell Duffie (1996). Dynamic Asset Pricing Theory (2nd or later edition). Princeton U. Press. J. M. Steele . Stochastic Calculus and Financial Applications P. Billingsley . Probability and Measure
4. 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.

Textbook recommended：Financial Institutions Management by Saunders

and Cornett, 2007.

 

5. Derivatives: Economic Concepts (2 units)

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.

Wharton syllabus 2008: http://finance.wharton.upenn.edu/courses/CourseDesc/financial-engineering-syllabus-spring08.pdf  

Wharton syllabus 2007:

Textbook:Derivatives Markets (2nd edition), by Robert L McDonald.

Accompany Website：http://wps.aw.com/aw_mcdonald_derivmkt_2/

http://www.kellogg.northwestern.edu/faculty/mcdonald/htm/typos1e.html

 

English edition book download (in 3 parts):

http://12.down.pinggu.org/UploadFile_20082009/2007-11/200711910462138566.pdf  

http://12.down.pinggu.org/UploadFile_20082009/2007-11/20071191050314535.pdf  

http://12.down.pinggu.org/UploadFile_20082009/2007-11/200711910533549072.pdf  

 

PPT download:

http://12.down.pinggu.org/UploadFile_20082009/2008-2/200822315523336270.rar  

 

中文版在线购买：http://book.eol.cn/computers/common/info.asp?id=426615  

 

As an additional reference, I also recommend: Options, Futures and Other Derivatives (6th edition), by John C Hull

Course outline

• Introduction

• Financial forwards

• Financial futures

• Commodity forwards/futures

• Hedging with forwards/futures

• Swaps

• Options: basics

• American options

• Pricing options, I: binomial trees

• Pricing options, II: models of stock returns

• Option Greeks

• Additional topics as time permits:

– limits of Black-Scholes

– corporate securities

– real options

– more derivative pricing

 

6. Derivatives: Quantitative Methods (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.

 

 

7. Fixed Income Markets (2 units) - Francis Longstaff

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.

Wharton syllabus：

Reference: Frank J. Fabozzi, editor. 2005. The Handbook of Fixed Income Securities,

Seventh Edition. McGraw-Hill. New York, New York

Choose 1 unit of electives:
Accounting and Taxation of Derivatives (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.

Credit Risk: Economic Concepts (1 unit) - Jeffrey Bohn

This first of two 1-unit courses will focus on the conceptual foundations of credit risk modeling and a discussion of how the models are used in practice. Students will gain familiarity with the model frameworks, vocabulary, and model implementation challenges. Students will gain exposure to the practical challenges associated with building, testing, and using credit risk models currently used by banks and asset managers.
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.

Required Course:
Financial Risk Measurement and Management (2 units) - Philippe Jorion
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 (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.

NOTE: A minimum grade of A- in the prerequisite courseDerivatives: Quantitative Methods ( 3 units )  is required to enroll in this elective

Success and Failure in Financial Innovation (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 (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 (1 unit) - Jeffrey Bohn

The second course in the credit risk series, this course will build on the foundation provided in the first course and provide a more in-depth presentation of how models are derived, estimated, and modified. This course is targeted toward students with strong backgrounds in mathematics and statistics. 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. The second course in the credit risk series, this course will build on this foundation and provide a more in-depth presentation of how models are derived, estimated, and modified.

Equity & Currency Markets (2 units) - Richard Lyons 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.

Choose 7 units of coursework:
Asset-backed Security Markets (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 (2 units) - Hayne Leland

This course reviews portfolio theory and pricing models, risk models for international portfolio returns, models of optimal allocation of funds, role of exchange rate uncertainty, and criteria for judging the performance of managers and models. It includes different types of portfolios/instruments (equity, fixed income, currency, mortgages, non-traded assets) and different types of applications (investment funds, pension funds, insurance companies, bank investment portfolios, etc.). This course examines how strategies that systematically change exposure to different assets can achieve various investment objectives.

Behavioral Finance (2 units) - Terry Odean

Over the last 25 years, psychologists have come to better understand the processes by which people make judgments and decisions. They have identified common judgment and decision heuristics and the biases associated with these. An understanding of one's own decision biases and those of others is an important tool for managers. Behavioral Decision Theory has also contributed to our understanding of financial markets. This course discusses the common biases and heuristics identified by psychologists. Topics will include overconfidence, the attribution theory, the representative heuristic, the availability heuristic, anchoring and adjustment, fairness, and prospect theory. We will try to gain an understanding of how these biases affect managers, investors, and financial markets.

Advanced Corporate Finance (and Real Options) (2 units) - Christopher Hennessy

Investment

Textbook suggested: Investments, 7th Edition, by Bodie, Kane and Marcus, Irwin, 2006

http://www.mhhe.com/business/finance/bkm/index.html  

Online Resouce: http://faculty.chicagogsb.edu/john.cochrane  

lecture notes: http://faculty.chicagogsb.edu/john.cochrane/research/Papers/notes.pdf  

http://my.harvard.edu/icb/icb.do?keyword=k7745  

Applied Finance Project (Required) (1 - 3 units)

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.
Independent Study (1 - 3 units) - Richard Stanton and Nancy Wallace

The MFE program requires satisfactory completion of 28 units of coursework. In addition to coursework, the MFE educational experience includes the following:

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.

Applied Finance Project: 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.

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.

Resource

1.      Overview: http://www.capst.org/events/FinancialEngineeringOverview.pdf  

2.      Video：http://cm.dce.harvard.edu/2007/01/12553/L01/index.shtml  

3.      Working Papers: http://www.haas.berkeley.edu/MFE/papers.html  

http://finance2.wharton.upenn.edu/~benninga/wiener.html  

4.      Detailed Syllabi: http://finance.wharton.upenn.edu/courses/Syllabi  

http://w4.stern.nyu.edu/finance/academic.cfm?doc_id=1226 http://www.fenews.com/fen48/spec-report/capstone/capstone.html  

5.      Fund Management notes: http://finance.wharton.upenn.edu/~musto/funding.html

6.      interest rate derivative：

Articles from US Fed:

Instructions for the Central Bank Survey of Foreign Exchange and Derivatives Market Activity, 2007

derivative instruments 2005

Do Nonfinancial Firms Use Interest Rate Derivatives to Hedge? 2005. http://www.chicagofed.org/publications/economicperspectives/2001/3qepart4.pdf

7.      Recommended Reading for The Master's program in Financial Mathematics in University of Chicago

Below is a list of recommended texts (several of which will be used in the program). The book by Boas contains most of the mathematics that entering students should be familiar with, while the early chapters in Hull's book are a good introduction to the financial products that are the basis of study for the program.

Author

Title

Mary L. Boas

Mathematical Methods in the Physical Sciences

Sebastien Bossu and Philippe Henrotte

Finance and Derivatives: Theory and Practice

John C. Hull

Options, Futures and Other Derivatives

Neil A. Chriss

Black-Scholes and Beyond: Option Pricing Models

P. Wilmott, S. Howison, J. Dewynne

The Mathematics of Financial Derivatives

Patrick Billingsley

Probability and Measure

Jonathan E. Ingersoll, Jr.

Theory of Financial Decision Making

Tim Weithers

Foreign Exchange: A Practical Guide to the FX Markets

Some other recommended readings. These are more to get a feel for how business works on Wall Street and not everything is centered around quants. Here are Neil Chriss' picks:

Author

Title

Edwin Lefevre

Reminiscences of a Stock Operator

Warren E. Buffett

The Essays of Warren Buffett: Lessons for Corporate America

Benjamin Graham, Jason Zweig

The Intelligent Investor: The Definitive Book On Value Investing

Daniel Reingold, Jennifer Reingold

Confessions of a Wall Street Analyst: A True Story of Inside Information and Corruption in the Stock Market

Joel Greenblatt, Andrew Tobias

The Little Book That Beats the Market

Joel Greenblatt, Jr.

You Can Be a Stock Market Genius: Uncover the Secret Hiding Places of Stock Market Profits

Peter Kaufman, Warren E. Buffett, Charles T. Munger

Poor Charlie's Almanac Expanded Second Edition. The Wit and Wisdom of Charles T. Munger

John A. Tracy, CPA

How to Read a Financial Report: Wringing Vital Signs Out of the Numbers

John Burr Williams

The Theory of Investment Value

Mark Rubinstein

A History of the Theory of Investments: My Annotated Bibliography

Some picks by Robert Frey:

Author

Title

Michael Lewis

Moneyball: The Art of Winning an Unfair Game

Edwin O. Thorp

Beat the Dealer: A Winning Strategy for the Game of Twenty-One

William Poundstone

Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street

Robert J. Frey

Lecture notes from Stony Brook, AMS-511 Foundations of Quantitative Finance