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Finance Engineering

It is the application of mathematical techniques in order to solve financial problems.


What is Finance Engineering

It is the application of mathematical techniques in order to solve financial problems. It makes use of tools and knowledge that belong to the fields of :

  • Computer science,
  • Statistics,
  • Economics, and
  • Applied mathematics

In order to address the current financial issues and alongside devise new and innovative financial products. It is sometimes also referred to as a quantitative analysis and is more often used by:

  • Regular commercial banks,
  • Investment banks,
  • Insurance agencies, and
  • Hedge funds.

A Break Down of Financial Engineering

Financial industry is always coming up with some new and innovative investment tools and new product and service offerings for its investors and companies. The credit for development of all these offerings, goes to techniques in the field of financial engineering.

With the usage of mathematical modeling and computer engineering, Finance engineers are able to test and issue new tools like:

  • New methods of investment analysis,
  • New debt offerings,
  • New investments,
  • New trading strategies, and n
  • New financial models, etc.

Financial engineers run quantitative risk models in order to predict the performance of an investment tool and whether in the long run, new offerings in the financial sector would be viable and profitable or not and also get an approximate estimate about the potential risks behind a product offering given the market volatility.

Financial Engineers also work in coordination with:

  • Insurance companies,
  • Asset management firms,
  • Hedge funds, and
  • Banks.

Within these companies, they work in

  • Proprietary trading,
  • Risk management,
  • Portfolio management,
  • Derivatives and
  • Options pricing,
  • Structured products, and
  • Corporate finance departments.

While financial engineering makes use of:

  • Stochastics,
  • Simulations and
  • Analytics

For design and implementation of new financial processes in order to solve problems in finance. The field also creates new strategies that companies can take advantage of so as to maximize their corporate profits.

Important Facts Due to the after effects of use of engineered structured products that caused 2008 global recession, Financial Engineering is considered to be a controversial field. However, it is apparent that this quantitative method of study has made great contributions towards the improvement of financial markets and processes by introduction of innovation, rigor, and efficiency in the markets and the industry.