Valuation for Financial Engineering

Course code: FRE 6103

Spring 2024: Finance and Risk Engineering Program at NYU Tandon Engineering School

Overview

FRE 6103 introduces financial engineers to robust risk-based valuation methods in discrete time in four major applications: cash flows, traded derivative contracts, nontraded and embedded derivatives, and corporate assets and liabilities.

• “Cash flows” refers to risk-free and risky payments or expenditures.
• “Traded derivatives” include a high-level treatment of forward contracts and the most commonly traded options contracts.
• “Nontraded and embedded derivatives” refer to contingent cash flows created in the normal processes of contracting and asset management
• “Corporate assets” refer to claims to cash flows owned and managed by corporations
• “Corporate liabilities” refers to corporate-issued securities or other payment obligations incurred by corporations

This course is not a generalist MBA finance course. Designed for engineers, it focuses on deep analytical methods, is computational in nature, and is driven by practical problems encountered by finance professionals. Being an introductory core course, it does not go into depth into all subject areas. Still, it provides a suitable and broad foundation for advanced elective courses in advanced valuation, corporate finance, investment, derivatives, and trading.

Inclusion Statement

The NYU Tandon School values an inclusive and equitable environment for all our students. I hope to foster a sense of community in this class and consider it a place where individuals of all backgrounds, beliefs, ethnicities, national origins, gender identities, sexual orientations, religious and political affiliations, and abilities will be treated respectfully. I intend that all students’ learning needs be addressed both in and out of class and view diverse students as a resource, strength, and benefit. If this standard is not being upheld, please feel free to speak with me.

Help and Office

• Teaching assistant: Check NYU Brightspace. Contact TAs first. Please do NOT copy me on your messages to the TA. If the TA cannot help you, please feel free to contact me.
• Me: dgode@stern.nyu.edu, 212-998-0021, Office: KMC 10-86, 44 West 4th Street.
  • Since it will be inconvenient for most of you to visit me at my Stern office, I will stick around after class to answer your questions that the TA cannot answer.
• Administrative assistant: Please email the TA. My admin assistant at Stern cannot help you.

Materials

• I use my materials. Therefore, no textbook is required, and you need not purchase anything.
• Text prepared by David Shimko. PDF will be distributed via NYU Brightspace
• You can also read the MFE version of Corporate Finance, 4th Edition (MFE Version) by Ivo Welch.

Assignments

• Link to Almaris Assignments
• Not all assignments will be on Almaris. I will post the remaining on NYU Brightspace.

Attendance and penalty for missing classes

Requiring attendance is necessary for several reasons. First, you incorrectly assume you can catch up on a missed class by watching a recording (if available). Videos do not engage your brain as much as a live class. Second, less than 20% of you watch the recording (if available). You are then lost in class, which provides wrong signals to me as an instructor. Third, your absence hurts class discussions. Fourth, you miss out on feedback if you do not work through the questions I pose in class. Fifth, I lose the feedback since there are fewer questions.

The policy below will be in effect only after the add/drop period.

Without mandatory attendance, attendance is often below 50%. Therefore, though I dislike doing this, I penalize absences. If you anticipate being absent for good reasons, please email me well in advance. Please enter "Excused" on the attendance sheet described below to avoid the penalty if I approve. If you miss a class due to emergencies and cannot tell me in advance, do not panic. Take care of the emergency first, and then email me. I will permit you to change the "Absent" to "Excused." But, if you miss a class without a valid reason, there is a penalty, as stated below.

For sections meeting in 150-190 minute sessions, you will lose one grade (A to A-, A- to B+, B+ to B, B to B-, and so on) for EVERY missed session unless you were explicitly excused via email. Thus, if you miss two class sessions, you will lose two grades, and so on.

For sections meeting in 75-80 minute sessions, you will lose one grade (A to A-, A- to B+, B+ to B, B to B-, and so on) for EVERY TWO missed sessions unless you were explicitly excused via email. Thus, if you miss four class sessions, you will lose two grades, and so on.

Please sit in the same seat in every class and display your name tags. For Zoom classes, you must keep your video on AT ALL TIMES. You must also have a good working headset or mic, as it is extremely rude to be inaudible and force me to ask you to repeat yourself. After entering the class, please mark yourself present in the first 20 minutes on the OneDrive sheet (link posted on Brightspace). You will be marked absent if you are more than 20 minutes late unless it is because of factors beyond your control (traffic, subway, interviews running late). You will also be marked absent if you leave the class early unless you have my permission or get it afterward. You will get an F in the course if you are caught cheating on the attendance sheet.

Exams and Grading

• Please read about the penalty for missing classes above.
• Assignments: 35% [You can use Excel or Python.]
• Team Project: 25%
• Final exam: 40%

TENTATIVE Schedule