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Concept
Financial engineering
Summary
Financial engineering is a multidisciplinary field involving financial theory, methods of engineering, tools of mathematics and the practice of programming. It has also been defined as the application of technical methods, especially from mathematical finance and computational finance, in the practice of finance.
Financial engineering plays a key role in a bank's customer-driven derivatives business
— delivering bespoke OTC-contracts and "exotics", and implementing various structured products —
which encompasses quantitative modelling, quantitative programming and risk managing financial products in compliance with the regulations and Basel capital/liquidity requirements.
An older use of the term "financial engineering" that is less common today is aggressive restructuring of corporate balance sheets.
Mathematical finance is the application of mathematics to finance. Computational finance and mathematical finance are both subfields of financial engineering. Computational finance is a field in computer science and deals with the data and algorithms that arise in financial modeling.
Financial engineering draws on tools from applied mathematics, computer science, statistics and economic theory.
In the broadest sense, anyone who uses technical tools in finance could be called a financial engineer, for example any computer programmer in a bank or any statistician in a government economic bureau. However, most practitioners restrict the term to someone educated in the full range of tools of modern finance and whose work is informed by financial theory. It is sometimes restricted even further, to cover only those originating new financial products and strategies.
Despite its name, financial engineering does not belong to any of the fields in traditional professional engineering even though many financial engineers have studied engineering beforehand and many universities offering a postgraduate degree in this field require applicants to have a background in engineering as well.
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