IE444 Operations Research in Finance Fall 2008

Instructor: M. C. Pinar
Room: 305
Office Hours:  Tuesdays 2-5 pm.
Reference Material:
          General information

The course aims to familiarize students with basic quantitative tools used in modern finance. The student intending to take the course should have a background in optimization at the level of IE303 and elementary probability as well as familiarity with engineering economics concepts. There will be homework assignments requiring use of XPRESS-MP optimization package, and of MATLAB.  There is no textbook. The instructor will provide hand-outs in class.


          1. Cash flow streams,  present value, bonds (1 week)
          2. Bond price volatility, duration and convexity (2 weeks)
          3. Bond portfolio analysis, cash flow matching and dedication: Nielsen's notes. (1 week)
          4. Option basics (2 weeks)
              Midterm examination
          5. Arbitrage in option pricing (2 weeks) (chapter 2 of Zhang)
          6. Option pricing models (2 weeks)(chapter 4 of Zhang)
          7. Modern portfolio theory, Risk measures VaR and CVaR (2 weeks, reference: relevant parts of Tutuncu and Cornuejols' notes above and and section 1 of review paper by M. Steinbach)
          8. Mortgage-backed securities (2 weeks)