FE 800 Special Problems in Financial Engineering

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Contents

Instructor Information

Instructor:

Instructor Ionut Florescu David Starer
Office Babbio 544 Babbio 546
website https://moodle.stevens.edu https://moodle.stevens.edu
Office hours Th 4:30–6:00pm,Fr 11:00–12:00 Mo 2:00pm–5:00pm and by appointment
email ifloresc@stevens.edu dstarer@stevens.edu

Class Schedule:
Thursday:6:15-9:30PM, BC122

Course Description

This course is designed for students undertaking a research or analytical project either individually or as a group. The project may be suggested either by faculty members or industry senior managers associated with your internship, as well as any internship that a student may receive through this course.


Project Types

  1. Research projects are typically oriented toward the field of Mathematical Financial Engineering. Some examples include:
  • Asset Replication through Kalman Filtering
  • Statistical Modeling of Trading Strategies
  • Credit Derivative Arbitrage
  • Dynamic Portfolio Allocation Methods
  • Optimal Hedging Monte Carlo
  • Regulatory Research (Basel III, CVA, etc.)
  • Stochastic Volatility modeling
  • Volatility trading strategies
  1. Analytics projects typically involve Software Design and Implementation. Some examples include:
  • CUDA parallel programming methods
  • Derivative Pricing and Hedging Software Design and Implementation
  • High Frequency Market and client implementation
  • News Analytics
  • Rare events automated discovery
  • Regulatory (Basel III, CVA) Software Design and Implementation
  1. Industry projects are geared toward solving problems arising in industry and are generally proposed by our industry partners. Some examples include:
  • Volatility Surface for OTC instruments (with ICAP)
  • Mortgage industry Analytics (with Fannie Mae)
  • Project ACTUS

Project Approval

The project chosen and developed throughout the semester must be:

  1. A project proposed by a faculty member,
  2. A project proposed by an industry supervisor and approved by the course instructors, or
  3. project proposed by a student and approved by the course instructors.

Grades

The final grade will be assigned according to the scheme in the below table:

Item Due Date Grade
Abstract, Schematics, and Literature Review 2015-01-12 10%
Phase One Presentations 2015-03-05 10%
Phase Two Presentations 2015-04-02 10%
Written Report 2015-04-30, 2015-05-07 30%
Oral Presentation 2015-05-04, 2015-05-10 30%
Attendance and Answering Questions in Class Throughout semester 10%

Late submissions will strictly not be accepted without prior notice and permission of the instructor. If outside circumstances are affecting your ability to perform in the course, you must contact the professor before you fall behind.

Previously Chosen Topics

The following list provides some titles of projects previously used in FE800. It may provide you with some useful ideas for your own project.

  • Basel II, Basel III, and CVA
  • Basel III RWA Assessment
  • Behavioral Finance Portfolio Theory based on the Shannon Entropy Theory
  • Systematic Trading Strategies Based on Pairs Trading
  • Dynamic Risk Model Framework
  • CUDA Parallel Programming methods
  • Historical Fundamental Data Gathering and Factor Modeling
  • Visualization of Swaption Volatility Surface
  • Enterprise Architecture Integration
  • Commodity Swaptions Implied Volatility Surface
  • Forecasting volatility using GARCH(1,1) Model
  • Twitter Messages Effect on Financial Markets
  • Particle Swarm Optimization Algorithm and Its Approach to Portfolio Optimization
  • Prepayment Modeling - Effect of Mortgage Enquiries
  • Price-Pattern-Volume-Momentum Trading Strategy in foreign exchange markets
  • Using Tweets to Explain the White Noise Factor in Financial Time Series Models
  • High Order Portfolio Optimization
  • Silver Lake/Dell Leveraged Buyout
  • Implementation of High Frequency Trading Algorithm
  • Higher-Moment Portfolio Optimization
  • Estimating the Term Structure of US Treasuries using Splines
  • The Relationship between Credit Default Swap Spreads and Corporate Bond Yields
  • Systematic and Systemic Risk Effects of Asian Bank Mergers
  • Detecting Change-Points in Financial Market
  • Assessing the Systemic Risk of Major Financial Institutions
  • Value-at-Risk Models for Global Crude Oil
  • Rare Events Analysis for High-Frequency Equity Data
  • Wavelet Transforms with Applications in Statistical Arbitrag
  • Combined-Signal Automatic Trading
  • Option Pricing Driven by Conditional Fractional Brownian Motion
  • Exotic Options Pricing using an Actuarial Method
  • Trading Stocks on Before- and After-Market News
  • Pricing Agricultural Commodity Derivatives
  • High Frequency Trading Market Microstructure Dynamics
  • Hierarchical Clustering to Classify Technical Indicators
  • Extracting Extrema of Financial Time Series Data using Poincare Map
  • Construction of an automated trading client within the sHiFT system
  • Stochastic Volatility models and applications to RISK
  • Portfolio Optimization Method using high frequency data and stochastic constraints
  • Social Media Sentiment Indicator, Visualization and Analytics
  • Smart Beta portfolios
  • Employees Stock Option study
  • Rare Events detection in finance and visualization using a JAVA platform
  • A study of the Chinese market instruments and profit opportunities
  • Robust Portfolio Optimization
  • Statistical arbitrage between ETF and its component stocks
  • Data visualization applied to co-movement of banks valuation
  • SABR model and applications to OTC instruments
  • Visualization of fixed income instruments

Recommended Course

If you have never written a technical paper in English, we recommend you enroll in the 1 credit course FE 505 Technical Writing in Finance. Starting with the Spring of 2015, we ask all our students to enroll in this course. At the end of the FE800 course, the project delivered needs to be of publishing quality. From our experience, this is the area where all students in FE800 NEED HELP. The center for writing at Stevens helps but it is not enough and they do not have the technical expertise required.

The FE 505 course is designed to help with the project writing as well as building presentation skills specific to our topic area. It teaches the use of LATEXthroughout which makes beautiful reports and presentations. The instructor of the course is going to help you build up these necessary skills.

Grading the final paper

In the following we describe how we shall grade the final paper and the breakdown of the points.

  • Difficulty (5 pts). Difficult problems receive more points. Trivial ones receive less.
  • Originality (5 pts). Papers showing more creativity will receive more points.
  • Organization (10 pts). Papers should be laid out in a clear, logical way. The structure should adhere to the format that will be discussed on numerous occasions. The paper should have clear headings, numbered pages, and good transitions.
  • Abstract (5 pts). The Abstract should give a very concise overview of the paper, and should emphasize the paper's particular contribution.
  • Introduction (10 pts). The Introduction should give a clear description of the background of the problem, why the problem is important, what new issues this paper intends to investigate, and how it differs from previous research.
  • Literature Review (5 pts). The Literature Review should give a thorough review of the research previously done on the topic. It should identify seminal papers in the field. The papers should all be related to the subject under consideration. Chicago citation style must be used. All papers cited in the Literature Review must be listed in the Bibliography, and all papers listed in the Bibliography must be cited in the Literature Review. This section may be combined with the introduction depending on the novelty of the subject.
  • Methodology (15 pts). The Methodology section should describe the techniques that were used to investigate the problem. Importantly, since this is a project in Financial Engineering, the method should be mathematically oriented, and should use equations that are properly formatted and explained. All variables should be defined clearly. Also importantly, the Method section must be so clear that

somebody else in the future can use it as a recipe to repeat the work done.

  • Results (15 pts). The Results section must describe your findings clearly in terms of what you set out to achieve and how you did so using the techniques described in the Methodology section. This section should not simply list a set of numerical results; it should also describe and interpret the results obtained in the context of the specific problem. The reader should be able to draw insight from this section.
  • Conclusion (5 pts). The Conclusion should mirror the Abstract, but should emphasize your new findings.
  • Bibliography (5 pts). The Bibliography should list the references from the Literature Review using Chicago style. All pertinent information should be listed so that future researchers will be able to locate and read the references. Use only reliable peer-reviewed articles as references.
  • Instructor Discretion (20 pts). The Instructor has discretion to add points for extraordinary achievements, or to subtract points for poor quality, spelling errors, grammatical errors, incorrect citations, failure to adhere to required format, or other issues.

Each group paper must explicitly state what contribution each group member made to the work.

Common problems

Many draft papers submitted suffer from a common set of problems. Please be wary of the following:

  • Lack of clarity. Too long phrases. Too much irrelevant information.
  • Lack of page numbering.
  • Referring to the written report as a ``thesis. This paper does not qualify as a thesis.
  • Lack of Figure and Table labels and descriptions.
  • Incorrect citation format.
  • Incorrect Bibliography format.
  • Errors in spelling and grammar. The former is inexcusable.
  • Failure to adhere to the required format.
  • No headings.
  • Failure to define and explain variables and acronyms.
  • The use of dubious quality references, such as Wikipedia.
  • The instructors can easily detect plagiarism, and no form of plagiarism will be tolerated. Please refer to the Stevens' library discusion of

plagiarism and the resulting penalty matrix.

Grading the Final Oral Presentation

Organization(10 Points)

Main points were clearly identified and easy to follow. Clear “sign- posts” to focus audience attention. The talk is logical. Presentation text is readable and clear. Graphs and figures are clear and under- standable. Visual components support the main points of the talk.

Content(25 Points)

Introduction (8 points)

Introduction has an ``attention getter. States the project's objective. Lays out the problem well. Defines background and importance of research.

Body (11 points)

Material included is relevant to the overall message. Appropriate amount of material is prepared for allotted time. Points made reflect their relative importance. Presentation used appropriate sources and cited in presentation. Material was clearly explained. Describes methodology.

Conclusion (6 points)

There is an obvious conclusion that summarizes the presentation. Reviews potential weaknesses (if any) in findings. Provides a "take-home" message.

Delivery and Style (5 Points)

Talk is well rehearsed. Speaker maintains good eye contact with the audience. Speaker uses a clear, audible voice. Delivery is poised, controlled, and smooth. Spoken, not read. Length of presentation is within the assigned time limits. Limited use of filler words ("umm," "like," etc.). Speaker is able to answer questions professionally. Talk maintains the interest of the audience. Speaker is dressed appropriately.


Textbook

No textbook is required for the course. However, you may find it useful to consultKate L. Turabian, {\em A Manual for Writers of Research Papers, Theses, and Dissertations.} 7th Edition. University of Chicago Press, 2007. ISBN: 02268233772

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