Financial Engineering

The derivatives security industry is a global multi-trillion dollar business in which options, swaps, and other structured products are structured, priced, hedged and traded. The functioning of this dynamic market relies on complex mathematical and financial models for pricing derivative securities. Examples include Black-Scholes, stochastic volatility models, and Heath-Jarrow-Morton among others. These valuation models rely on advanced mathematics and must be computed numerically in all but a few special cases.

The Financial Engineering track prepares students for careers in derivatives trading, structuring, and risk management. Since understanding both the business and the mathematics of financial models is essential for good decision making, the track consists of the finance and mathematics core of the highly-respected Masters in the Science of Computational Finance (MSCF) program. Students completing the track will be proficient in cutting-edge option pricing techniques. Track participants will gain proficiency in the mathematical theory underlying these models and be able to implement numerical methods for computing derivative prices and risk sensitivities; skills which will give them an advantage on the trading desk, in creating new structured products, and in managing derivative risk.

Who Should Apply
Students who want an in-depth understanding of the mathematical theory underlying the financial models being used and developed at Wall Street should participate in this track. Given the rigor or the track, the mathematical prerequisites are undergraduate-level calculus-based probability and, ideally, differential equations.

Curriculum Information
The finance sequence in the FE track covers topics relating to derivative trading and investment management as well as presenting and marketing sophisticated financial products. The math sequence builds tools to model the continuous-time dynamics of stock prices, interest rates and other
underlying variables for derivative contracts. It starts with modeling single random variable and builds to continuous-time stochastic calculus.

Faculty Coordinators
Duane Seppi
Professor of Financial Economics
The Tepper School of Business
ds64@andrew.cmu.edu  

Steve Shreve
Orion Hoch Professor
Department of Mathematical Sciences
shreve@andrew.cmu.edu