What is Financial Engineering?

Financial Engineering is a discipline that applies theories and tools of Mathematics, Statistics & Probability, Physics and Computer Science to solve the problems of Finance. It combines theories of finance, economics, mathematics, statistics and computer science to the study the financial markets. It is also known as Quantitative Finance, Mathematical Finance or Computational Finance.

Modern investment finance has become very much dependent on Mathematics, Statistics and Numerical Computational Methods. Investments involve complex financial instruments the pricing, trading, risk analysis of which are complex and involve sophisticated mathematical models.

What are the knowledge and skills required by a financial engineer?

To be a financial engineer you need to have understanding of:

  • Advanced Mathematics
  • Advanced Statistics and Probability
  • Modern Finance
  • Economics & Econometrics
  • Computer programming
  • Derivatives Pricing
  • Derivatives Hedging
  • What are the areas in which financial engineering is used ?

    Financial engineers are specialists who use mathematical formulas, programming and engineering methods in financial theories, to analyze market trends and build data-backed financial models.

    Companies often employ people with advanced degree in Financial Engineering to work as investment managers, bankers or traders to improve the quality of existing investment products.

    The primary responsibility of a financial engineer is to have a thorough knowledge of financial markets, its volatility and knowledge of financial theories.

    This knowledge is used by engineers to develop simulations and predict market behavior.

    Financial Engineers are also hired by companies in their risk management teams.