Financial Engineering Case Competition (FECC)

[Uncle Max]

This is a contest which Peter del Rio had mentioned during the dinner last Friday:

http://business.tepper.cmu.edu/default.aspx?id=143028

http://mfe.berkeley.edu/competition2006.html

Does anyone wants to try to participate?


Can we acttually get in there? Last year they had only: Columbia University, Carnegie Mellon, Massachusetts Institute of Technology, University of Pennsylvania and the University of Chicago.



Case Format

A broad overview of the case is as follows:
1. Each team will take the perspective of an investment bank. A client (e.g., a non-financial firm, a pension fund, an insurance company, etc.) will have a business problem they are trying to solve. The goal is to financially engineer a derivative-based solution to the client's problem. For example, previous year's cases have involved interest rate swaps in the context of mortgage-backed securities as well as credit swaps.
2. The basic motivation for the deal will be given in the case. The competing teams will be asked to (a) design a structured product that meets the clients needs, (b) price the deal and (c) construct a hedging strategy to manage their risk.
3. Each team will have six hours to carry out their analysis and to prepare their oral presentation. Any combination of Excel, PowerPoint and/or overheads may be used in the presentation.
4. As part of the presentation, each team will need to present the judges a formal written "term sheet" summarizing the key provisions of the deal (e.g., option strike prices, swap fixed rates, notional principal levels, etc.).

Case Specifics for 2005

As was announced previously, the case for the 2005 Financial Engineering Case competition involves valuation and structuring issues for asset backed securities in the Home Equity Loan market. The focus will be on the interactions of interest rate and various types of credit risk.

The previously distributed Lehman Brothers article, "The ABCs of HELs," is essential background reading. Some specific topics to be familiar with are:
1. Hybrid HEL terms and structures
2. ABS terms and structures
3. Prepayment and default drivers
4. Principal, interest and excess interest waterfalls

Technical prerequisites:
1. Risk neutral valuation with stochastic interest rates
2. One factor interest rate models and their calibration
3. Monte Carlo simulation for interest rates and for asset paths
4. Constructing pairs of correlated standard normals to drive correlated Brownian motions
5. You may or may not need to simulate Poisson jumps.
6. Ability to model mortgage cash flows over (no more than) 10 years with annual time steps

 

[John]

Max,

I think it is a great competition. Our program is getting to a point that it has good coverage of almost all of the topics and tools that would come up in this event and would be ready for it.

Here are the old (& very interesting) cases. http://bertha.tepper.cmu.edu/fec/index.html

I have been going through a couple of them. Although challenging and open to each team's creativity, the designers of the case study generally has some sort of modeling framework in mind and make the suggestions accordingly: for example, in the case of Millennium Aggresive Bond Fund, the authros suggest that the participants model and simulate 'stopping times' for bond defaults. http://bertha.tepper.cmu.edu/fec/millennium.pdf

Going back to the format of the competition, I believe each school's team was formed in and sent by MBA business school, so in case our program would participate next year, we would have to partner with Zicklin school of business.

 

[gc6130]

i'm in

Max,

I think it is a great competition. Our program is getting to a point that it has good coverage of almost all of the topics and tools that would come up in this event and would be ready for it.

Here are the old (& very interesting) cases. http://bertha.tepper.cmu.edu/fec/index.html

I have been going through a couple of them. Although challenging and open to each team's creativity, the designers of the case study generally has some sort of modeling framework in mind and make the suggestions accordingly: for example, in the case of Millennium Aggresive Bond Fund, the authros suggest that the participants model and simulate 'stopping times' for bond defaults. http://bertha.tepper.cmu.edu/fec/millennium.pdf

Going back to the format of the competition, I believe each school's team was formed in and sent by MBA business school, so in case our program would participate next year, we would have to partner with Zicklin school of business.

Count me in.
I am willing to go through cases with some students, in a semi-formal format (not suit-and-tie, I just mean in a classroom setting, but just non-credit). Actually I had spoken to Dan about this, and he agreed. Let's see if any one else is also interested.

-Greg

 

[Uncle Max]

Going back to the format of the competition, I believe each school's team was formed in and sent by MBA business school, so in case our program would participate next year, we would have to partner with Zicklin school of business.

For past years all schools had mixed teams, consisting of MBAs and MFEs. And it's understandable, because MBAs in general have better financial background and MFEs contribute more on quantitative side. Thus, possible colaboration with Zicklin is a great idea. The key question is how to get in into this competion.

 

[Uncle Max]

Re: i'm in

Count me in.
I am willing to go through cases with some students, in a semi-formal format (not suit-and-tie, I just mean in a classroom setting, but just non-credit). Actually I had spoken to Dan about this, and he agreed. Let's see if any one else is also interested.

Thanks Greg! Your help will be indispesable if we find the way to get in there. The Berkeley School has two coaching professors for this competition. And they participated in all nine competitons. A belive the same is true for other schools over there. Moreover, schools encourage their students to go to NYC for this event, paying traveling, hotel, and other fees. Therefore, the competition is valuable for their programs.

I hope we can find enough people willing to participate and help with this contest. Overall, it will be great for Baruch in general and our program in particular to be there.

 

[Peik Looi]

I'd like to participate too.

 

[RussianMike]

I'd like to participate, time permitting.

 

[dstefan]

Greg and I talked about it. I will try to find out about how we can get in.

 

[alain]

I would like to participate as well. It is a great opportunity to learn.

 

[Andy Nguyen]

Previous cases papers are here. It's worth a look to see what's involved
http://bertha.tepper.cmu.edu/fec/index.html