POLYTECHNIC UNIVERSITY 2005-2007

FINANCIAL ENGINEERING PROGRAM
duces stochastic programming as a
methodology that deals with discrete
time optimization under certainty.
Prerequisites: FE 672 and MA 614 (or
EL 723).
FE 675 Operational Risk
Measurement and Management
1 1 ⁄4:0:0:1 1 ⁄2
The operational difficulties faced by
financial institutions have created a need
for tools to measure and manage operational
risk. An accurate appreciation of
risks, exposures and controls is critical to
managing risk effectively in today’s
dynamic global business environment.
Course examines the effects of transaction
processing, liquidity management,
organizational structure, personnel and
compliance on the nature of operational
risk. Qualitative and quantitative measures
of operational risk are discussed.
FE 680 Financial Engineering
(research course) 2 1 ⁄2:0:0:3
A research/case course. It can be handled
a number of different ways at the discretion
of the faculty supervisor. It may
involve (1) a series of cases that are dissected
and analyzed, (2) teaming of students
with industry personnel for proprietary
or non-proprietary research projects
or (3) developing thesis-type research.
Generally, students work under the supervision
of a faculty member, but the course
is intended to be largely self-directed
within the guidelines established by the
supervising faculty member. A significant
written research component is required.
Prerequisites: Should be taken during
students’final semester. Prerequisites will
vary depending on students’ track and
nature of project undertaken. Note: This
is a 3-unit course the first time students
register for it. In the event that they do not
receive a final grade from the FE adviser,
students must receive permission from the
FE adviser to formally register continuously
for this course for 1 1 ⁄2 units per
semester for a maximum of two semesters.
After this time period has expired, a
final grade must be submitted by the
course adviser or else it will automatically
turn into an F and the student will need
to retake this course for 3 units.
FE 682 Empirical Methods in Finance
2 1 ⁄2:0:0:3
The use of quantitative methods in financial
engineering requires strong foundations
in statistical techniques applied to
problems in portfolio management, trading,
derivatives pricing, etc. Students
learn how to estimate the parameters that
are used in valuation models and other
financial models. The uncertainty accompanying
estimated parameters is of particular
importance in financial applications,
and appropriate significance tests
will be reviewed. Topics covered include
the following: a brief review of stationary
time series models in the traditional
ARIMA framework; the properties of stochastic
time series, test for trends and unit
roots; estimation and forecasting with
single-equation time series models;
measuring the “performance” of forecasts,
which is useful in the evaluation of
trading strategies; event analysis generalized
to intervention analysis in the context
of multi-equation time-series models;
estimation of transfer functions; and
the identification of impulse response
functions in the implementation of Value
at Risk (VaR) models. Time-varying
volatility is an important empirical characteristic
of economic time series, and
students will learn how to estimate a variety
of autoregressive conditional heteroskedastic
(ARCH) models. An important
area of implementing and forecasting
these models is risk management.
Depending on the background and the
interest of students, greater emphasis is
given to selected topics, while stressing
software-based applications throughout
the course. While understanding the
underlying theory is indispensable, this
course stresses application of the econometric
tools to real projects.
Prerequisites: FE 640, FE 650 and FE
671.
FE 780-789 Special Topics in
Financial Engineering
3 units
Topics of current interest to financial
engineers. Prerequisite: Specified when
offered. Contact the FE program director
for more information.
FE 790-799 Special Topics in
Financial Engineering
1 1 ⁄2 units
Topics of current interest to financial
engineers. Prerequisite: Specified when
offered. Contact the FE program director
for more information.
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