COURSE DESCRIPTION The discipline of Financial Computation (金融計算) or Financial Engineering (財務工程) combines four fields: Finance, Computer Science, Mathematics, and Statistics. The major goal of this course is to learn how to solve pricing problems for various derivative contracts by developing analytic formulae (解析解) and/or computer programs (電腦程式). Specifically, various pricing approaches for some important exotic options will be introduced in this course, such as Asian options (亞洲式選擇權), barrier options (障礙選擇權), lookback options (回顧選擇權), convertible bonds (可轉換公司債), and rainbow options (彩虹選擇權). To ensure the fluency of my lecture, I assume that students are equipped with the basic knowledge in Finance, especially that associated with derivatives. Thus, it requires that students have learned the courses of “Futures and Options” or other similar courses. Extended from the knowledge learned in “Futures and Options”, several topics will be comprehensively studied in this course, such as stochastic processes (隨機過程), option pricing models, various numerical techniques, hedging strategies for options/futures, etc. Basic ability of computer programming is necessary for students to implement their assignment. However, the time constraint does not allow me to teach computer programming in detail, so students need to learn it while completing their assignments. VBA is a highly recommended computer language for beginners. My website provides several PowerPoint, PDF, EXCEL sample files to briefly introduce VBA. Do not worry about lacking computer programming skills. According to my experience of teaching this course for more than 20 years, less than 4% of students failed this course, and none of them are due to zero programming experience. It is my hope that students can learn many financial theories, good programming practices, advanced mathematics, and most importantly, the true meaning of the financial engineering in this course.

COURSE OBJECTIVES ※ Students can apply the martingale pricing method, (least squares) Monte Carlo simulation, binomial tree model, and finite difference method to price various kinds of derivative assets. ※ Students can derive the mean, variance, or even the distribution of a stochastic process at a future time point. ※ Students knows clearly the features of contracts of plain vanilla options, rainbow options, lookback options, and Asian options and the difficulties for pricing them. ※ Students are equipped with the programming ability to conduct researches in the field of financial engineering. ※ Students are able to read academic papers in the field of financial engineering.

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