MAROUN SEMAAN FACULTY OF ENGINEERING AND ARCHITECTURE DEPARTMENT OF INDUSTRIAL ENGINEERING AND MANAGEMENT COURSE SYLLABUS ENMG 624 Financial Engineering I Fall 2024 - 2025

General Course Information

Table 1: Overview of Course Information

General Information

Course Number	ENMG 624
Course Title	Financial Engineering I
Number of Credits	3
Course Level	graduate
Course Format	Face-to-Face
Pre-requisite Courses	List pre-requisite or co-requisite course(s)
Required/Elective	Elective
Meeting Schedule
Meeting Location

Course Coordinator, Instructors and Teaching Assistants

Table 2: Contact Information for Course Coordinators, Instructors, and Teaching Assistants

Name	Role (Instructor, Coordinator, TA,)	Office Location	Office Hours	Extension	E-mail
Bacel Maddah	Instructor	Bechtel 319	M 2-4	3551	bm05@aub.edu.lb

Course Description

Financial Engineering is the tailoring of cash flows over time to be as desirable as possible.This involves the scientific design of financial products which are traded in the financialmarkets. Examples of financial products (also known as financial instruments or securities)include bonds, stocks, futures, and options. This course aims to (i) introduce students tothe investment process and financial markets; and (ii) explain how Financial Engineering isapplied to structure an important class of financial securities. Specifically, the course willfocus on portfolio management and valuation of financial instruments modeled as singleperiod random cash flows (e.g. stocks) and will introduce the student to the pricing of abasic class of financial derivative securities (forwards, futures and options) using discretetime tools (i.e., the underlying asset prices is assumed to change at discrete time points).This study has many direct applications in the financial market and provides insights thatcan be extended to handle more complex financial instruments with continuous-time analysis. (These will be covered in ENMG 625 Financial Engineering II.) The course will alsoprovide the students with a good exposure to areas such as mathematical modeling, optimization, probability, and, more generally, to finance, and operations research.

Course Learning Outcomes

Upon completion of the course, students will be able to:

CLO1. Analyze the role of diversification in reducing portfolio risk

CLO2. Formulate the mean-variance Markowitz portfolio optimization problem for risky assets over a single period

CLO3. Solve the mean-variance portfolio problem taking into account the role of short selling

CLO4. Estimate the input parameters of the Markowitz model based on factors and historical data

CLO5. Utilize CAPM to valuate and analyze the risk of assets

CLO6. Explain the real-world investment applications of CAPM

CLO7. Identify the basic rules of Futures and Options Trading

CLO8. Utilize the geometric Brownian motion model for stock price and its lattice approximation

CLO9. Describe the role of arbitrage in pricing financial instruments

CLO10. Apply the short lattice and arbitrage to price basic financial and real options

CLO11.

CLO12.

CLO13.

CLO14.

CLO15.

Program Learning Outcomes Addressed in The Course

Explicitly indicate which of the program learning outcomes are addressed in the course.

PLO1. Advanced Core Knowledge in the Discipline: Analyze core concepts and theories in different areas of study in their discipline

PLO2. Oral Communication Skills: Demonstrate scholarly communication skills in clear, detailed and well-structured scientific oral format consistent with high standards of their discipline.

PLO3. Research Methods: Analyze qualitative and quantitative information while conducting or applying research related to their graduate program

PLO4.

PLO5.

PLO6.

PLO7.

PLO8.

PLO9.

PLO10.

PLO11.

PLO12.

PLO13.

PLO14.

PLO15.

Course Resources and References

Indicate textbook title, author, and year. Include a link to the Moodle page or the course web page.

Luenberger, D. G. Investment Science, Oxford University Press

Course Outline

Include the topics covered and learning activities (assignments, projects, term papers, etc.) with their due dates. Indicate the alignment of topics/ learning activities with the Course Learning Outcomes.

Table 3: Course Schedule Overview

Week	Date	Topic	Learning Activities and Due Dates	Alignment with CLOs
1	The basic theory of interest. Present and future value of streams, internal rate of return. Probability primer. Basic probability theory, random variables, distribution functions, joint distributions. (Chapter 2, Luneberger).
2	Mean-variance portfolio theory. Portfolio mean and variance, feasible set, efficient frontier, the Markowitz model, the two-fund theorem, inclusion of a risk-free asset, the one-fund theorem (Chapter 6, Luenberger).
3	The capital asset pricing model. Market equilibrium, the capital market line, the pricing model, performance evaluation. (Chapter 7, Luenberger).
4	Estimation of parameters. Factor models. Mean blur. Effect of estimation error (Chapter 8, 9, and 10, Luenberger).
5	Futures. Forward contracts, forward prices, future contracts, future prices, swaps, minimum variance and optimal hedging. (Chapter 12, Luenberger)
6	Models of asset dynamics: Binomial lattice model, geometric Brownian motion. (Chapter 13, Luenberger)
7	Basic option theory. Option concepts, option values, option combinations, put-call parity, single- and multi-period binomial option theory, real options, risk-neutral pricing. (Chapter 14, Luenberger)
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15

Indicate mode of delivery as Lecture, Recitation, Laboratory, Team-based Learning, etc.

Include all methods for assessing student achievement, including assessment rubrics for evaluating the learning activities.

Grading Criteria

Table 4:Evaluation Criteria and Percentage

Type of Evaluation	Percentage
Midterm Exam	32%
Final Exam	33%
Homework Assignments	15%
Presentation	20%
Total	100%

Course Policies

Attendance

For undergraduate courses:

“Students who miss more than one-fifth of the sessions of any course prior to the withdrawal deadline can be withdrawn from the course by the instructor.”

For graduate courses:

“A student who is absent without excuse for more than one third of the number of sessions in any course may be dropped by the instructor of the course”.

Credit Hour Policy

“This course follows AUB Credit Hour Policy for three credit courses. This course meets twice weekly for 3 academic hours per week. The course also includes independent out-of-class assignments for academic hours per week.”

Submissions and Due Dates

Homework problems will be assigned and graded frequently. Students are encouraged tospend plenty of time working on the homework problems and to discuss their solution witheach other and the instructor. However, each student should write and submit the homeworkindividually. Do not type the homework. But do staple it. Doing the homework is the bestway to excel in this course.

Missing Projects/Assignments

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Final Examinations:

Please note that students are expected to be on-campus and available to take a final examination for any of their courses at anytime during the final examination period. Students and professors will be notified of the final examination schedule being posted on the Office of the Registrar website as soon as feasible after the change of schedule period (drop and add).

Make-up Quizzes and Exams

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Group Work

Selected readings from BAM book will be assigned to each student. Each student willpresent the assigned reading within 20 minutes of class time, during the last week of classes.The presenters are required to go beyond the assigned chapters and enrich the presentationwith “colorful” material from the web and other sources. To guarantee the quality of thepresentation, the presenters must send me their presentation slides one week before thepresentation and be ready to incorporate my feedback. To stimulate the class interest inthe presentations, 15% of the final exam will cover basic concepts from the presentations.Non-presenting students are encouraged to read the chapter before coming to class and toask the presenters “good” questions.

Teaching Strategies and Technology Tools

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Use of AI in the Course

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University Rules and Regulations

General Academic Information

Undergraduate Academic Information

Graduate Academic Information

University - Course Withdrawal Policy

A student can withdraw from only one required course per semester. Students who wish to withdraw from more than one required course in any given semester must petition the appropriate faculty committee for permission to do so. Check Withdrawal Information from undergraduate and graduate catalogue.

Academic Integrity (cheating and plagiarism)

Please refer to AUB Student Code of Conduct, in particular section 1.1, which concerns academic misconduct including cheating, plagiarism, in-class disruption, and dishonesty. Please be aware that misconduct is vigorously prosecuted and that AUB has a zero tolerance policy. Course policy is that credible evidence of cheating will result in course failure.

Accessibility Statement to Acknowledge the Unique Learning Needs of Students with Disabilities

AUB strives to make learning experiences as accessible as possible. If you anticipate or experience academic barriers due to a diagnosed disability (including learning disability, mental health, chronic or temporary medical conditions), please contact the Accessible Education Office as soon as possible in order to help establish reasonable accommodations and facilitate a smooth learning process: accessibility@aub.edu.lb; +961-1-350000, x3151; West Hall, 338.

Failure to implement the accommodations provided by the Accessible Education Office constitutes a violation of AUB's non-discrimination policy, and may be reported to the Equal Opportunity Officer/Title IX Coordinator who also serves in the role of Section 504 Coordinator, at 01-350000 ext. 2514, titleix@aub.edu.lb.

Non-Discrimination and Anti-Discriminatory Harassment, including Sexual Harassment at AUB https://www.aub.edu.lb/President/oeo-titleix/Pages/syllabus.aspx

In line with its commitment to the principle of equal opportunity in admission, education, and employment, AUB policies protect you from discrimination and discriminatory harassment, including sex discrimination and sexual harassment, in alignment with the objectives of Title IX of the U.S. Education Amendments of 1972.

The policies are applicable to all the AUB Community including: officers, faculty, staff, academic appointees, students (including medical interns and residents), visiting students, alumni, trainees, visitors, contractors, subcontractors, suppliers, located on campus and at AUB Medical Center, Advancing Research Enabling Communities Center (AREC), or any other facility or program affiliated with the University. The “AUB Community" also includes the dependents and domestic employees of faculty and staff dwelling on campus and at AREC.

If you think you have experienced discrimination, discriminatory harassment, or sexual harassment, we encourage you to inform the Title IX Coordinator, Mitra Tauk at 01-350000 ext. 2514, titleix@aub.edu.lb, report to a Title IX deputy at your faculty or at any other faculty (www.aub.edu.lb/titleix), or report online (www.aub.ethicspoint.com).

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AUB Grading System

https://www.aub.edu.lb/Registrar/Pages/academic-information.aspx

Numeric Course Grade to Letter Course Grade Grade Conversion Chart Table 5:Numeric Course Grade to Letter Course Grade Table 6: Grade Conversion Chart Starting with Numeric Course Grade /100 Corresponding Course Letter Grade Course Letter Grade Quality Points < 60 F A+ 4.3 60 D A 4.0 61–62 D+ A– 3.7 63–65 C– B+ 3.3 66–68 C B 3.0 69–71 C+ B– 2.7 72–74 B– C+ 2.3 75–78 B C 2.0 79–82 B+ C– 1.7 83–86 A– D+ 1.3 87–92 A D 1.0 93–100 A+ F 0.0

Note: The GPA at AUB is capped at 4.0​​

I ​P ​PR ​W NP ​Incomplete ​Pass ​In Progress ​Withdraw ​No Pass