The Risk Finance track presents a comprehensive approach to managing risk in the context of globalized markets, financial compliance, multi-dimensional regulatory environments and industry convergence across the financial spectrum. This specialization will prepare you for a challenging career in risk finance, insurance, credit risk and derivatives or financial risk management.
Challenges faced by practitioners of risk finance include:
- Managing financial, extreme and cyber risks in an era of uncertainty and global markets in turmoil and out of equilibrium.
- Developing financial products that are robust and anti-fragile to value risks and allow the safe transfer and the securitization of risks to better access financial liquidity and financial risk exchanges. Both, optional financial products such as credit derivatives and financial insurance products are introduced, priced and managed to prevent financial losses and to hedge trading bets.
- Corporate Finance Risk Management, embedded in financial risk management of banks and other industrial and financial institutions.
- Financial regulation to better comprehend the complexity and complying to multiple regulation agencies as well as global regulation currently at the forefront of financial authorities.
- Financial Analytics to better measure risks, price and manage trading risks in an environment where stealth trading, high frequency trading, uncertainty and multi-agents finance prevail. In such an environment a greater appreciation of out-of-equilibrium (incomplete) finance, statistical tools, big-data finance and financial technology to track, assess and control become essential tools to engineer financial risk management.
- Market Risk Analytics in banks, investment management firms and hedge funds.
- Operational Risk Management to implement the company’s operational risk framework.
- Quantitative Model Risk and model validation including the implementation process, reviewing model standards, assessing risk mitigation policies and monitoring risk events.
The job opportunities open to graduates in the Risk Finance Track are expanding and may include jobs in Credit Risk, Derivatives and Management in Loan Firms and Banks, Insurance and their use of financial Instruments, Regulation, within Agencies with responsibilities over Financial Institutions
(such as the Treasury-The OCC, The SEC, etc. As well as Compliance Management, in particular in the Banking sector, in Hedge Funds and in numerous Regulated Institutions, Investment and Hedge funds and Corporate Financial Risk Management.
Required to Complete the Financial Engineering MS program:
- 5 core courses, each 3 credits totaling 15 credits
- Track-required courses totaling 7.5 credits
- 1 required applied lab worth 1.5 credits
- 6 credits of electives
- 1 capstone experience of 3 credits
- Capstone assessment (0 credits)
- Bloomberg Certification (0 credits)
Total # of credits: 33
Students in the Risk Finance Track will be required to attend the following courses as well as select a set of courses to tailor their interest and their focus on financial risks management (whether quantitative and technology oriented or management focus)
** Recommended: Math Refresher in Probability and Statistics
7.5 credits are required from the following:
- Extreme Risk Analytics FRE-GY 6041
- The course covers failures of financial theory in risk management, deriving from fundamental definitions and assumptions in modeling, including pricing formulae; convexity; stochasticity and volatility; "fat tails"; and risk. Other topics: Portfolio robustness and extreme markets and moral hazard; data-mining biases and decision error; and decision-making with incomplete information.
Pre-Requisite: Graduate Standing
- Clearing and Settlement and Operational Risk FRE-GY 6131
- This course focuses on issues involved in processing financial transactions—from order execution to final settlement of transactions—and operational risk in general. The course examines the procedures and market conventions for processing, verifying, and confirming completed transactions; resolving conflicts; decisions involved in developing clearing operations or purchasing clearing services; the role played by clearing houses; and numerous issues associated with cross-border transactions. The course also examines the effects of transaction processing, liquidity management, organizational structure, and personnel and compliance on the nature of operational risk. Qualitative and quantitative measures of operational risk are discussed.
Prerequisite: FRE-GY 6151 and Graduate Standing
- Static and Dynamic Hedging FRE-GY 6141
- The course discusses advanced topics in hedging exposures, with emphasis on adaptation of the mathematics to the real world. Examines applications in quantitative finance. Methods in the hedging of cash flows and liabilities for corporations and for option traders are covered. A synthesis is made of both theory and historical hedges traded.
Prerequisite: Graduate Financial Risk Engineering students only
- Financial Market Regulation FRE-GY 6211
- This course considers the role and forms of regulation in the U.S. financial markets, the role of the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Federal Reserve, the Office of the Controller of the Currency (OCC), and self-regulating organizations (SROs) such as the National Association of Securities Dealers and the National Futures Association. Also examined are the roles of the state insurance commissions and the STATE OR FEDERAL Department of Labor.
Prerequisites: FRE-GY 6031 and Graduate Standing
- Actuarial Models FRE-GY 6223
- Many problems in actuarial science involve building a mathematical model to forecast or predict future insurance losses and revenues. Historical data guide the actuary in selecting the model and in calibrating its unknown parameters. The course introduces discrete and continuous actuarial models such as loss, frequency and severity models and their specific characteristics. It then studies aggregate loss models in which individual risks are pooled into a manageable aggregate risk. Finally, financial tools are used to market price theses losses and allow a securitization of insurance firms’ portfolios.
Prerequisite: FRE-GY 6051 Insurance Finance and Actuarial Science and Graduate Standing
- Econometrics and Time Series Analysis FRE-GY 6351
- Financial econometrics has matured into a necessary and essential part of financial engineering that provides opportunities to deal with real and practical problems in finance. For example, techniques such as ARCH and GARCH and their subsequent development are used to estimate the volatility of underlying financial processes; the analysis of intra-day trading data that requires particular models and techniques; memory-based and fractal stochastic processes to study complex markets behaviors and copulas applied routinely to model- and estimate-dependent risks. These financial and risk problems require the application of advanced financial-econometric techniques, which the course provides from both theoretical and empirical-applied viewpoints. Selected cases provide a real-world sense of financial engineering when it is faced with financial-market reality and complexity.
Prerequisite: FRE-GY 6083 and Graduate Standing
- Basel 3 & Banking Assets Management FRE-GY 6731
- This course addresses financial risk management and particularly focuses on Basel 3 directives and Value at Risk (VaR), a method to assess risk that employs standard statistical techniques routinely used in other fields. VaR analysis is used by bank and corporate managers and by financial market regulators.
Co-requisite: FRE-GY 6711 and Graduate Standing.
- Sp Tpc in Applied Credit Derivatives & Securitization FRE-GY 6941
Recommended Electives (6 credits):
- Insurance Finance and Actuarial Science FRE-GY 6051
- This course highlights essential facets of actuarial science, insurance and the finance-insurance convergence. The course assumes that students are familiar with basic notions of expected utility and stochastic processes, and options pricing. Topics include Insurance Business and Insurance Firms Management; Principles of Actuarial Science and Risk Pricing in Insurance and in Finance (Complete Markets); Expected Utility Approach to Insurance Risk Pricing and Management; Derivatives and the Financial Approach to Insurance Pricing; Insurance Products (Life Insurance, Casualty, Pension Funds and Defined Benefits); Principles of Insurance Management in a Dynamic and Global Setting. Throughout, the course uses numerous cases centered on actuarial and insurance problems and analyzes them from a financial perspective. Of particular interest are those related to insurance pricing, reserve policies, insurance pension funds, CATBOND and weather (insurance) derivatives and regulation.
Prerequisite: FRE-GY 6103. Co-Requisite: None. Notes: None.
- Financial Econometrics FRE-GY 6091
- This course focuses on the art and science of statistical modeling of processes applied to business, finance and economics. These may include models of aggregate economic activity, economic behavior of firm or behavior of financial assets. Topics include statistical inference; maximum likelihood estimation; method of moments; Bayesian estimation; least-squares estimation; robust estimation; kernel estimation; copula estimation; analysis of variance; linear regression models; multiple regression; logistic regression; quantile regression; time series estimation; unit root tests; bootstrapping.
Prerequisite: FRE-GY 6083. Students are expected to know basic statistics. Prerequisite FRE-GY 6083 and Graduate Standing
- Applied Derivative Contracts FRE-GY 6291
- This course provides an introduction to derivative contracts with a special emphasis on current practical applications in use today by financial institutions for investing, hedging, trading and issuing. The characteristics and features of futures, forwards, swaps, options and structured notes are all covered with a special emphasis on useful applications. For each of the four primary derivative contracts, we review in these lectures the appropriate definitions, terminology, market mechanics and theoretical fair value pricing.
Prerequisite: FRE-GY 6003, FRE-GY 6023, FRE-GY 6103 and Graduate Standing
- Financial Risk Management and Optimization FRE-GY 6331
- This course provides solutions to the inter-temporal problems in financial management of portfolios, credit risks and market making. Dynamic and stochastic dynamic programming techniques as well as optimal control and stochastic control principles of optimality are presented, and their financial contexts emphasized. Both theoretical and practical facets of inter-temporal management of financial risks and risk pricing are also stressed. The course uses financial and optimization software to solve problems practically.
Prerequisites: FRE-GY 6083, FRE-GY 6123, and FRE-GY 6091 and Graduate Standing.
- Fixed Income Securities and Interest Rate Derivatives FRE-GY 6411
- This course examines the body of analytical tools and measures that constitute modern fixed-income markets. The valuation of interest-rate sensitive cash flows is the unifying theme. Major topics include theories of term structure, institutional aspects of fixed-income markets and analytical techniques for managing interest-rate risk. Bond refunding, defeasance, corporate bonds, forwards, futures, options and interest-rate swaps are discussed. The course gives an overview of the major classes of fixed-income securities and the markets in which they trade. Among the major classes of fixed-income instruments discussed are Treasury and agency securities, mortgage-backed securities (including CMOs and Strips), asset-backed securities, municipals, floating and inverse floating rate securities.
Prerequisite: FRE-GY 6023, FRE-GY 6083, FRE-GY 6103 and Graduate Standing
- Credit Risk & Financial Risk Management FRE-GY 6491
- This course provides a deep understanding of credit instruments from a qualitative and quantitative point of view. Students learn how to price credit derivatives and hedge credit risk. Both the structural and intensity models approaches are presented. Applications to a number of structured products are considered.
Prerequisites: FRE-GY 6411 and Graduate Standing
- Special Topics in Financial Engineering FRE-GY 6971
- Current topics of particular importance in finance and risk engineering are analyzed and discussed. Selected topics will be emphasized and provide focus for further study. Examples might include urban finance engineering, environmental
finance, infrastructure and projects finance, real estate finance, insurance
finance and derivatives, macro hedge funds management, among others. Prerequisites: advanced standing and instructor’s permission and Graduate Standing
Various special topics courses, as offered, including:
- Extreme Risk & Fractional Finance
- Financial Cyber Risks Management
- Topics in Real Time Trading & Risk Management
- Topics in Financial Risk Management
- Topics in Advanced Credit Risk and Derivatives
- Topics in Actuarial and Insurance Finance
- Topics in Financial Analytics and Big Data
- Topics in Financial Regulation and Compliance
- Financial Risk Management and Incomplete Markets
- Financial Risk Measurement
Labs (1.5 credits*):
Students must choose one lab from the following:
- Financial Software Laboratory FRE-GY 6811
- This course teaches students to use financial software tools commonly employed in industry. Examples include: @Risk, Yieldbook, Excel, R, and C++.
Prerequisites: Graduate Standing
- Financial Econometric Laboratory FRE-GY 6821
- This course teaches students to use Eviews and Stata.
Prerequisites: Graduate Standing
- Computational Finance Laboratory FRE-GY 6831
- This course teaches students to use Matlab and GAMS.
Prerequisites: Graduate Standing
- Financial Software Engineering Laboratory FRE-GY 6861
- This financial lab requires students to publicly participate in a large software project. This participation could take the form of contributing to an open-source financial software project with the contributions being accepted and committed to the main branch, or publishing a stand-alone library or package for a programming language commonly used in financial applications, or the development or updating of a brand-new industrial strength financial software application. As the students work on their project, this course will focus on important software engineering considerations specifically as they apply to the fast-paced world of financial projects, such as formalized procedures for revision control and bug tracking and other proven methods of software management in a fast-paced financial environment.
Prerequisite: Graduate Standing
- R in Finance FRE-GY 6871
- This course introduces the free programming language R and its many applications to finance including risk management, portfolio construction, strategy development and testing, and trading and execution. Topics covered include financial time series analysis, advanced risk tools, applied econometrics, portfolio management, and derivatives valuation. Students will be required to write some code in R every week.
Prerequisites: Matriculation into a graduate program sponsored by the Department of Finance & Risk Engineering, or permission of the Department & FRE-GY 6123 and FRE-GY 6083
- Financial Computing FRE-GY 6883
- This course covers programming applications to financial engineering, including C++ and Java and the various common development environments for them. Topics include structured and object-oriented programming in C++ with applications to binomial options pricing, multi-threaded programming in Java with applets and graphical interfaces with applications to risk measurement tools, data-based manipulation and programming in SQL and standard database access libraries with applications to historical financial data series retrieval and management, and other advanced programming concepts important for financial engineering such as numerical techniques, trading systems, and large-scale software design.
Matriculation into a graduate program sponsored by the Department of Finance & Risk Engineering, or permission of the Department.
*Please note: for FRE-GY 6883, 1.5 credits count as lab and 1.5 credits as elective.
Watch the video to learn more about the Insurance Finance and Actuarial Science course:
FRE 6051 Insurance Finance and Actuarial Science - Professor Charles Tapiero
NOTE: All students must fulfill a lab requirement. Please see the curriculum page for more details.