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Code IE 412
Term 201801
Title Financial Engineering
Faculty Faculty of Engineering and Natural Sciences
Subject Industrial Engineering(IE)
SU Credit 3
ECTS Credit 6.00 / 6.00 ECTS (for students admitted in the 2013-14 Academic Year or following years)
Instructor(s) Yi?it At?lgan,
Detailed Syllabus
Language of Instruction English
Level of Course Undergraduate
Type of Course Click here to view.
(only for SU students)
MS303 IE303
Mode of Delivery Formal lecture,Interactive lecture,Laboratory
Planned Learning Activities Communicative,Simulation

This course serves as a comprehensive introduction to derivative securities and their applications in financial engineering. Forward contracts, futures, options, and swaps are the focal point of the course. While the main emphasis is on the use of derivatives as risk-transferring/ minimizing devices, valuations of such contracts are also included. In addition to hedging strategies to be created by any of the derivative securities, various trading strategies involving options (spreads and combinations) are presented. A solid coverage of no-arbitrage-based pricing is provided as the common underlying premise to valuing derivative securities. Cost-of-carry valuation of forwards and futures, binomial pricing of options, dynamic delta-hedging, the Black-Scholes option pricing formula, basic numerical pricing are introduced.


To introduce derivative securities (Forward contracts, futures, options, and swaps) emphasizing their use as risk-transferring/ minimizing devices.

Learning Outcome

Upon successful completion of the course, the student should be able to:
Identify the characteristics and uses of options and apply option-based trading strategies for various purposes including hedging,

Use appropriate models for the valuation of options, including Black-Scholes and Binomial option pricing models,
Identify and analyze the influence of the determinants of the value of options,
Describe the nature of futures, forwards, and swaps,
Apply valuation methods for futures, forwards, and swaps,
Describe how to manage interest rate and foreign exchange risk via futures, forwards, and swaps,
Explain financial engineering and related applications of derivatives.

Programme Outcomes
Common Outcomes For All Programs
1 Understand the world, their country, their society, as well as themselves and have awareness of ethical problems, social rights, values and responsibility to the self and to others. 3
2 Understand different disciplines from natural and social sciences to mathematics and art, and develop interdisciplinary approaches in thinking and practice. 3
3 Think critically, follow innovations and developments in science and technology, demonstrate personal and organizational entrepreneurship and engage in life-long learning in various subjects. 3
4 Communicate effectively in Turkish and English by oral, written, graphical and technological means. 2
5 Take individual and team responsibility, function effectively and respectively as an individual and a member or a leader of a team; and have the skills to work effectively in multi-disciplinary teams. 2
Common Outcomes ForFaculty of Eng. & Natural Sci.
1 Possess sufficient knowledge of mathematics, science and program-specific engineering topics; use theoretical and applied knowledge of these areas in complex engineering problems. 4
2 Identify, define, formulate and solve complex engineering problems; choose and apply suitable analysis and modeling methods for this purpose. 3
3 Develop, choose and use modern techniques and tools that are needed for analysis and solution of complex problems faced in engineering applications; possess knowledge of standards used in engineering applications; use information technologies effectively. 3
4 Ability to design a complex system, process, instrument or a product under realistic constraints and conditions, with the goal of fulfilling specified needs; apply modern design techniques for this purpose. 1
5 Design and conduct experiments, collect data, analyze and interpret the results to investigate complex engineering problems or program-specific research areas. 3
6 Knowledge of business practices such as project management, risk management and change management; awareness on innovation; knowledge of sustainable development. 4
7 Knowledge of impact of engineering solutions in a global, economic, environmental, health and societal context; knowledge of contemporary issues; awareness on legal outcomes of engineering solutions; understanding of professional and ethical responsibility. 2
Common Outcomes ForSchool of Management
1 Demonstrate an understanding of economics, and main functional areas of management. 4
2 Assess the impact of the economic, social, and political environment from a global, national and regional level. 1
Industrial Engineering Program Outcomes Core Electives
1 Formulate and analyze problems in complex manufacturing and service systems by comprehending and applying the basic tools of industrial engineering such as modeling and optimization, stochastics, statistics. 3
2 Design and develop appropriate analytical solution strategies for problems in integrated production and service systems involving human capital, materials, information, equipment, and energy. 2
3 Implement solution strategies on a computer platform for decision-support purposes by employing effective computational and experimental tools. 2
Management Program Outcomes Area Electives
1 Pursue open minded inquiry and appreciate the importance of research as an input into management practice. 3
2 Know how to access, interpret and analyze data and information and use them to make informed decisions. 4
3 Work effectively in environments characterized by people of diverse educational, social and cultural backgrounds. 3
4 Identify, select, and justify strategies and courses of action at the divisional, business, and corporate levels of analysis and to develop effective plans for the implementation of selected strategies. 4
Mechatronics Engineering Program Outcomes Area Electives
1 Familiarity with concepts in statistics and optimization, knowledge in basic differential and integral calculus, linear algebra, differential equations, complex variables, multi-variable calculus, as well as physics and computer science, and ability to use this knowledge in modeling, design and analysis of complex dynamical systems containing hardware and software components. 3
2 Ability to work in design, implementation and integration of engineering applications, such as electronic, mechanical, electromechanical, control and computer systems that contain software and hardware components, including sensors, actuators and controllers. 1
Materials Science and Nano Engineering Program Outcomes Area Electives
1 Applying fundamental and advanced knowledge of natural sciences as well as engineering principles to develop and design new materials and establish the relation between internal structure and physical properties using experimental, computational and theoretical tools. 1
2 Merging the existing knowledge on physical properties, design limits and fabrication methods in materials selection for a particular application or to resolve material performance related problems. 1
3 Predicting and understanding the behavior of a material under use in a specific environment knowing the internal structure or vice versa. 1
Assessment Methods and Criteria
  Percentage (%)
Final 40
Midterm 40
Homework 20
Recommended or Required Reading

Hull, John C., "Options, Futures and Other Derivatives", Pearson, 9th edition, 2014.