Financial Engineering

Financial engineering is an emerging field that resides at the intersection of mathematics and finance. It draws from areas of computer science, numerical methods, economics, calculus, linear algebra, and differential equations. Baruch College’s Financial Engineering Master’s Program is currently ranked #1 in North America by the Quantnet.

The Academy strives to give students a comprehensive overview of financial engineering through the following initiatives:

• Intensive learning focusing on the theoretical principles of financial engineering and how to apply them
• Introducing students to the level of rigor necessary for success in university-level mathematics, engineering, physics, computer science, or other quantitative degree programs
• Exploration and investigation of the various applied mathematics topics necessary to understand basic research literature describing financial engineering models used in practice
• Guided practice of common interview puzzles and problems faced by candidates seeking placement in numerical careers at investment banks, hedge funds, and other financial institutions
• Real-world experience in stock, bond, and option trading during mock competitions on the Wasserman Trading Floor at the Baruch College Subotnick Financial Services Center

Brief Selection of Financial Engineering & Applied Mathematics Topics Covered*

Introduction to College-Level Mathematics

Students learn about the foundations of two fields of applied mathematics used widely in financial engineering: calculus and probability. Regardless of their prior exposure to calculus, students are taught the topics they need in order to comprehend the financial engineering part of the curriculum. These topics include an understanding of the behavior of functions, limits, differentiation, integration, numerical methods, and Taylor series. Students also gain exposure to basic probability axioms, conditional probability, random variables, discrete and continuous probability distributions, the normal distribution and its properties, and expected value and variance. Students are instructed throughout the course that probability models used in finance are simply estimations and approximations; computer programs run algorithms and simulations to more closely model the behavior of prices on the market.

Financial Engineering Theory and Models

Students explore concepts relevant to a mathematically oriented introduction to finance. They learn about the time value of money, present and future values of an asset, interest rate models, finding the zero-rate curve using bootstrapping, bond properties (yield, duration, and convexity), risk and volatility, cash flows and dividends, arbitrage opportunities, the Law of One Price, call options, put options, put-call parity, engineering desired payoff spreads using European options, futures contracts, forward contracts, how to calculate bond properties (yield, duration, and convexity), the lognormal distribution of stock returns, option pricing using binomial trees, risk-neutral probability, derivation of the Black-Scholes formula, hedging using the Greeks (delta, gamma, vega, theta, rho, etc.), and optimization methods applied to portfolio management.

Brainteasers and Puzzles

Students are encouraged to be creative and think outside the box in order to enhance their problem solving skills. Brainteasers and mathematical puzzles are often used in interviews to gauge candidates’ preparedness (since these questions can often be practiced) and also their ability to find patterns and interpolate information from them. Each day our instructors and students work together to solve interesting and challenging problems that promote and enhance critical thinking.

Stock Trading Competitions

Students compete in simulated trading competitions on the Wasserman Trading Floor at the Subotnick Financial Services Center. They use the Rotman Interactive Trader software on their very own Bloomberg terminals. Students learn about the law of supply and demand in real time while buying and selling shares, bonds, and options of fictional companies with one another in an exciting race to see who comes out on top!

*Course material is subject to change.