In the fourth module, learners would be introduced to the concept of securitization, specifically asset backed securities(ABS). The third module introduces credit derivatives and subsequently focuses on modeling and pricing the Credit Default Swaps. Learners will operate model calibration using Excel and apply it to price a payer swaption in a Black-Derman-Toy (BDT) model. In the second module, we will examine model calibration in the context of fixed income securities and extend it to other asset classes and instruments. In the first module we discuss the term structure lattice models and cash account, and then analyze fixed income derivatives, such as Options, Futures, Caplets and Floorlets, Swaps and Swaptions. This course will focus on capturing the evolution of interest rates and providing deep insight into credit derivatives. Subsequently, the multi-period Binomial Model will be illustrated using American Options, Futures, Forwards and assets with dividends.
The final module focuses on option pricing in a multi-period setting, using the Binomial and the Black-Scholes Models. In the third module, learners will engage with swaps and options, and price them using the 1-period Binomial Model.
We will introduce present value (PV) computation on fixed income securities in an arbitrage free setting, followed by a brief discussion on term structure of interest rates. The second module includes concepts around fixed income securities and their derivative instruments. This will prepare learners with the mathematical fundamentals for the course. The first module gives an overview of the prerequisite concepts and rules in probability and optimization. Introduction to Financial Engineering and Risk Management course belongs to the Financial Engineering and Risk Management Specialization and it provides a fundamental introduction to fixed income securities, derivatives and the respective pricing models.