MySchool

Department of Engineering
Dean:	Dr. Ármann Gylfason
Email:	ru@ru.is
Website:	http://www.ru.is/tvd
Teachers	View

MSc in Financial Engineering
Semesters:	4
Years:	2
ETCS:	120
About major	Fjármálaverkfræði er þverfagleg grein sem samþættir fjármálafræði við verkfræðilegar aðferðir, stærðfræðileg líkön, tölfræði, aðgerðagreiningu og hagnýta tölvunarfræði. Nám í fjármálaverkfræði hentar þeim sem hafa áhuga á t.d. áhættustýringu, afleiðuviðskiptum eða fjárstýringu. MSc námið er mótað að kröfum Verkfræðingafélags Íslands um fullnaðarmenntun í verkfræði.
Learning Outcomes	View
Education cycle	2

Legend
	Mandatory course on major		Teaching language
	Optional course on major		Prerequisites for course

Vorönn/Spring 2024

Energy Financial Assessment

SE-833-FA2

ECTS 6

Engineering Optimization

T-423-ENOP

ECTS 6

Sleep

T-424-SLEE

ECTS 6

Decision Analysis for Management

T-603-AKVA

ECTS 6

Internship in Engineering I

T-706-INT1

ECTS 6

Internship in Engineering II

T-706-INT2

ECTS 6

Systems Biology

T-765-SYBI

ECTS 8

Project Management and Strategic Planning

T-803-VERK

ECTS 8

Derivatives and risk management

T-814-DERI

ECTS 8

Creating a Complete Business Plan for a Technical Idea - Entrepreneurship and the Innovation Process

T-814-INNO

ECTS 8

Modern Trends in Financial Engineering

T-816-MTFE

ECTS 8

Tissue Engineering and Biomaterials

T-828-TISS

ECTS 8

Graduate Research Opportunities I

T-829-GRO1

ECTS 6

Finite Element Analysis in Engineering

T-844-FEMM

ECTS 8

Neural Engineering

T-863-NEUR

ECTS 8

Wind Power

T-863-WIND

ECTS 8

Power System Operation

T-867-POSY

ECTS 8

Stability and Control in Electric Power Systems

T-867-STAB

ECTS 8

Protection Philosophy for Smart-Grids

T-868-PROT

ECTS 8

MSc Thesis

T-899-MEIS

ECTS 30

MSc Thesis

T-900-MEIS

ECTS 30

MSc thesis II

T-901-MEI2

ECTS 30

Business Process Management

V-716-BPMA

ECTS 7,5

Entrepreneurial Finance

V-733-ENTR

ECTS 7,5

Business Intelligence and Analytics

V-784-REK5

ECTS 7,5

Entrepreneurship and Starting New Ventures

X-204-STOF

ECTS 6

Exchange Studies

X-699-EXCH

ECTS 30

Sumar/Summer 2024

Graduate Research Opportunities I

T-829-GRO1

ECTS 6

Exchange Studies

X-699-EXCH

ECTS 30

Haustönn/Fall 2024

Special Topics in Energy I

SE-801-STE

ECTS 1

Energy Economics

SE-805-EC1

ECTS 6

Special Topics in Energy III

SE-806-STE

ECTS 6

Embedded System Programming

T-738-EMBE

ECTS 8

Simulation II

T-806-SIMU

ECTS 6

Quality Management

T-807-QUAL

ECTS 6

Applying Models in Management

T-808-NOLI

ECTS 8

Data Mining and Machine Learning

T-809-DATA

ECTS 8

Optimization Methods

T-810-OPTI

ECTS 8

Applied Probability

T-811-PROB

ECTS 8

Financial Engineering of the Firm

T-814-FINA

ECTS 8

Year

1. year

Semester

Fall 2024

Level of course

4. Second cycle, introductory

Type of course

Core

Prerequisites

T-503-AFLE, Derivatives
T-602-RISK, Risk Management

Schedule

No schedule found.

Lecturer

Sverrir Ólafsson

Content

We analyse financial variables that critically contribute to corporate value creation. Different valuation models will be introduced and applied to realistic scenarios. They include: enterprise discounted cash flow; discounted economic profit; adjusted present value; capital cash flow and equity cash flow. We will discuss how capital structure impacts on the firm’s return-risk profile and the probability that the firm defaults on its financial commitments. The CAPM will be linked with the theory of options and the resulting structure used to evaluate the credit risk a leveraged firm exposes to its equity and debt providers. In addition to equity and debt financing we will discuss other alternatives such as convertible bonds or instruments with pay-outs that reflect the level of some important market indices.

The course starts by analysing investment decisions under different levels of uncertainty. Decision trees and real options will be compared with NPV and IRR methods and their superiority demonstrated with several practical examples. The course continues with an extensive discussion of capital structure and its impact on the firm’s risk – return profile as well as its likelihood to default on its debt. The relationship between various important corporate value drivers will be analysed and their impact on the enterprise value discussed. A detailed analysis of the relationship between the CAPM and option theory will be presented and applied to the valuation of corporate assets.

Learning outcome - Objectives

This course will analyse the financial performance of firms, both from theoretical and practical perspective. An emphasis will be put on the analyses of value creation and the factors that drive it. The theory of investment choice will be developed under conditions of certainty and uncertainty. Real options will be introduced as an extension to NPV approach with applications to several practical situations. Considerable effort will be focused on capital structure and its relation to market value of equity and debt as well as credit spread on debt and the probability of corporations defaulting on their debt payments. Also, various structured financial instruments will be designed and priced and their use in risk management will be compared with the use of more conventional techniques such as forward contracts and vanilla options.

Knowledge: On completion of this course the students will have an extensive knowledge of the complexities of corporate financial matters and the range of models and techniques that have been developed to manage the performance of firms and the variety of financial risks they are exposed to. These include the application of the theory of investment choice under certainty and under uncertainty; understand the importance and the limitations of NPV and IRR methods; apply real options to real investment scenarios and the valuation of projects/firms; appreciate the implications of capital structure and the value of leverage; appreciate the role of risk capital; understand the role of corporate value drivers.

Skills: On completion of this course students will be able to apply their acquired knowledge of financial engineering techniques to a whole range of important situations, either everyday pop-up problems or medium to long term strategic issues relating to investment decision or the designing of risk management strategies.

Competence: On completion of this course students will have a good understanding of how to analyse complex financial situations and be able to successfully apply the appropriate techniques to each given situation.

Course assessment

Continuous assessment; projects; class exams. No final exam.

Reading material

No reading material found.

Teaching and learning activities

Interactive lectures, projects and class exams.

Language of instruction

English

Managing Research and Development - Methods and Models

T-814-PROD

ECTS 8

Fixed Income and Interest Rate Modelling