Financial Engineering
MAP 6621 Fall 2014
200 LOV
MWF 9:05--9:55 am

Prof. Alec N. Kercheval
contact me
113 Love Building; 644-8701 (office); 644-2202 (front desk)
Note: See the course Blackboard page for handouts and other materials.
office hours MWF 10-11 am; or by appointment
This course is designed for 2nd-year students in the Financial Mathematics Graduate Program. Others may enroll with consent of the instructor. Students should have already taken MAP 5601 Introduction to Financial Math.
primary textbooks
We will use the following three texts in this course:
  • R.C. Grinold and R.N. Kahn, Active Portfolio Management, 2nd Editon, McGraw-Hill, 2000.
  • G. Anderson and A. Kercheval, Lectures on Financial Mathematics: Discrete Asset Pricing, Morgan and Claypool Synthesis Lectures on Math. and Stat., 2010. ( See )
  • Martin Baxter and Andrew Rennie, Financial Calculus, Cambridge Univ. Press, 1996.
Recommended for further reading: Qian, Hua, and Sorensen, Quantitative Equity Portfolio Management: Modern Techniques and Applications, Chapman and Hall/CRC, 2007.
The purpose of this course is to further develop and reinforce the quantitative skills and intuition needed by financial engineering professionals. The course will be divided into three sections:

Quantitative Active Portfolio Management: a practical view of how portfolio managers quantitatively approach their job, with an view to understanding more of the underlying mathematics than the MBA course allows. We develop portfolio theory enough to rigorously understand the derivation of basic properties of Markowitz mean-variance portfolio optimization. Text: Grinold and Kahn.

Financial Calculus -- Discrete Theory: in which we look carefully at the ideas underlying the stochastic mathematical models that are used for pricing most derivatives and interest rate instruments. Our goal is to seek an essential understanding of the fundamentals, including various concepts of arbitrage and the fundamental theorem of asset pricing, undistracted by the technicalities of continuous time analysis. The general discrete model is a good accessible setting for understanding essential ideas. Text: Anderson and Kercheval.

Financial Calculus -- Continuous Theory: where we look at the stochastic differential equation formalism for Black-Scholes derivative pricing, and extend the discussion to interest rate modelling as time allows. Text: Baxter and Rennie.
Homework will be assigned regularly and discussed in class. Most of the homework grade will be based on student in-class presentation of homework solutions. At the end of the semester, students will also hand in a neatly organized folder containing personally written solutions to the homework problems assigned during the semester.
There will also be a programming assignment using Python and equity price data. Details TBA.
There will be three in-class exams, one covering each section of the course, on dates to be announced. The third exam is scheduled for the regular final exam period, Thursday December 11, 2014, 10am - noon.
The course grade will be computed as follows: homework 10% (in-class presentations plus end-of-semester hand-in solutions plus Python assignment), and each of the three exams 30%. On-time attendance is expected and will be used to resolve borderline grades.
An unexcused missed exam receives a zero. Those with prior permission or sufficient documentation will substitute an oral exam.

Academic Honor Policy: The FSU Academic Honor Policy outlines the University's expectations for the integrity of students' academic work, the procedures for resolving alleged violations of those expectations, and the rights and responsibilities of students and faculty. Students are responsible for reading the Academic Honor Policy and for living up to their pledge to ''. . . be honest and truthful and . . . strive for personal and institutional integrity'' at FSU. (The FSU Academic Honor Policy is at

In this class, you are permitted to work together with classmates on homework problems, but you must turn in only work written by yourself. All exams and any other assignments must reflect only your own work unassisted by others.

Audio, video, or photographic recording of class activity is not permitted except by express permission of the instructor.

University Attendance Policy: Excused absences include documented illness, deaths in the family and other documented crises, call to active military duty or jury duty, religious holy days, and official University activities. These absences will be accommodated in a way that does not arbitrarily penalize students who have a valid excuse. Consideration will also be given to students whose dependent children experience serious illness.

Americans With Disabilities Act: Students with disabilities needing academic accommodation should: (1) register with and provide documentation to the Student Disability Resource Center (SDRC) and (2) bring a letter to the instructor indicating the need for accommodation and what type. This should be done during the first week of class. This syllabus and other class materials are available in alternative format upon request.

For more information about services available to FSU students with disabilities, contact: SDRC, 874 Traditions Way, 108 Student Services Building, FSU, Tallahassee, FL 32306-4167, (850) 644-9566 (voice), (850) 644-8504 (TDD),,

FSU's Syllabus Change Policy: Except for changes that substantially affect implementation of the evaluation (grading) statement, this syllabus is a guide for the course and is subject to change with advance notice.