Body of Knowledge

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Financial Engineering for Investment

The module “Financial Engineering for Investment” covers valuation across instruments and asset classes:
– the standard financial engineering materials on risk-neutral valuation for derivatives (Black-Scholes, martingales, etc.)
– non-linear actuarial pricing (distortion measures, risk premium arguments, etc.)
– company/deal valuation, typically more tied to the investment banking and strategic consulting professions (discounted cash flows, comparable analysis, etc.).
This module also covers the connections between valuation, instrument-specific sensitivities (the “Greeks”) and the different risk factors in the market.
Finally, this module covers the techniques (Monte Carlo full repricing, analytical approximations, etc.) to model the value of the different instruments at the future investment horizon, in addition to their present value.

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