FINANCIAL ENGINEERING (ADVANCED ENGINEERING ECONOMY)
ISyE 4803E (Fall 08)
Professor:
Office:
Phone:
Email:
Office Hours:
Steve Hackman
Room 324
894-2327
shackman@isye.gatech.edu
M-W 6-7 or by appointment
1. Course Materials
There is no text for the course. Material will be drawn from several sources, including parts
of the following texts:
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Investment Science by D. Luenberger, Oxford University Press, 1998.
Stochastic Calculus for Finance, Vols. I and II by S. Shreve, Springer Finance, 2004.
Real Options: A Practitioner’s Guide by T. Copeland and V. Antikarov, Texere, 2001.
Advanced Engineering Economics by C. Park and G. Sharp, John Wiley & Sons, 1990.
Supplemental notes, handouts and exercises will be posted regularly on my web site
http://www2.isye.gatech.edu/~shackman/isye4803E_F08/index.htm and represent an integral part
of the course. It is your responsibility for bringing materials to class as long as they were
posted by midnight the previous day; otherwise, it will be my responsibility.
2. Course Description and Objectives
Students learn the basic terminology, concepts and issues relevant to financial engineering
and management. Students also learn the core concepts and advanced techniques for economic
decision analysis of capital investment and for managing and valuing project risk.
3. Course Organization
Since there is no text, attending class is a must. If you miss a class, then it is your
responsibility to catch up (i.e. no private lectures during office hours).
4. Grading
Your grade will be determined as follows: Midterm I: Wednesday, September 24 (20%),
Midterm II: Wednesday, November 12 (30%), and Final Exam [currently scheduled Tuesday,
December 9, 11:30am] (50%). No regrading. In case of an emergency, you must receive the
instructor’s prior permission to miss an exam. In such a case, at my discretion either: (i) the
exam will be rescheduled, (ii) an alternative exam will be scheduled, or (iii) your grade will be
pro-rated based on the other exams.
5. Homework
Some problems will be straightforward; others quite challenging. You are encouraged to
work together. Some solutions to the homework problems will be posted on the web site. Doing
the homework is essential to learning this material.
6. Projected Topics
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Financial markets and investment
Financial options pricing
Real options and decision-tree analysis of project investment
Mean-variance portfolio optimization
Capital asset pricing and cost of capital.
Fixed-income securities and interest-rate derivatives
Forwards, futures
Asset price dynamics
Stochastic differential equations and Ito calculus