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

Managing Research and Development - Methods and Models

T-814-PROD

ECTS 8

Fixed Income and Interest Rate Modelling

T-815-FIXE

ECTS 8

Year

1. year

Semester

Fall 2024

Level of course

5. Second cycle, intermediate

Type of course

Core

Prerequisites

No prerequisites.

Schedule

No schedule found.

Lecturer

Heiðar Ingvi Eyjólfsson

Content

The focus of this course is on fixed income securities. Various types of bonds will be introduced, such as fixed and variable rate bonds, zero coupon and coupon paying bonds. Also, bonds that include various options, such as equity conversion, withdrawal rights (callable bonds) and sell back rights (putable bonds) will be discussed. Various models for the term structure of interest rates will be introduced as well as techniques to construct the term structure by using a range of different interest rate instruments. Risk modelling for fixed income securities is an important activity for bond portfolios. We will demonstrate, by the use of models and examples, how value at risk, duration and convexity are applied in managing and quantifying bond portfolio risks. We will discuss the immunization of bond portfolios and the construction of bond portfolios that cover certain future cash flow liabilities. To manage inflation risk we introduce inflation indexed instruments such as bonds and swap contracts. Finally we will cover basic stochastic processes for fixed income analysis and use both binomial trees and continuous processes for the construction of some well-known interest rate models such as, Vasicek, Hull-White, Ho-Lee, and Black-Derman-Toy. These models will be applied to the construction of the term structure of interest rates and to the pricing of bonds and derivatives on interest rate instruments.

Learning outcome - Objectives

At the end of the course the student will have an appreciation of the important role fixed income and interest rate models play in financial engineering. The student will be able to apply the methods and techniques learned to a range of concrete real world problems. This learning outcome can be broken down into the following sub-outcomes:

Understand different cash-flow concepts such as, present – and future values, amortization and indexation
Be able to value different types of bonds with fixed and floating coupons
Use important interest rate concepts such as, par yield, yield to maturity, spot rates, forward rates, infinitesimal rates and discount curves
Use bootstrapping techniques to construct the term structure of interest rates from the prices of various interest rate instruments such as zero coupon bonds, coupon paying bonds, Libor and swap rate contracts
Understand how structured notes with or without options are priced
Use basic concepts such as duration, convexity and immunization to manage the risk of bond portfolios
Use bond immunization techniques to match assets to liabilities
Understand how to price and risk manage inflation linked bonds and swap contracts
Use stochastic one-factor models for the pricing of zero coupon bonds and other simple interest rate instruments
Use the HJM model and Libor market models for the pricing of caps, floors, swaps and swaptions

Course assessment

Reading material

No reading material found.

Teaching and learning activities

Language of instruction

English

Advanced Biomechanics II

T-828-BIOM

ECTS 8

Energy in Industrial Processes

T-863-EIIP

ECTS 8