career repository

Financial Engineering

By on Dec. 18, 2017


Financial engineering is the application of mathematical methods to the solution of problems in finance. It is the use of mathematical techniques to solve financial problems. Hence it is also known as financial mathematics and Computational finance. This document includes the following topics.

1.Introduction to Financial Engineering
Financial engineering involves the concepts from applied mathematics, computer science, statistics, and economic theory. Financial engineering is applicable to derivatives pricing, financial regulation, execution, corporate finance, portfolio management, risk management, trading and structured products. Financial engineering is sometimes referred to as quantitative analysis and is used by regular commercial banks, investment banks, insurance agencies and hedge funds. The application of finance based mathematical models to find solutions on saving, investing, borrowing, lending, and managing risk.

2.Origin and History of Finance Engineering
The idea of financial engineering is about generating new techniques besides altering the basic techniques. The initiatives for finance engineering were taken after realization of Wall Street in need of a new stream in 1990’s. There are ten forces which inspire financial engineering. They were risk management, cost reduction of agencies and issuances, tax advantages, regulation compliance, changes in the interest and rate of exchange, advancements in technology, gimmicks accounting and research academics.

History: The financial engineering program at New York University Polytechnic School of Engineering was the first curriculum to be certified by the International Association of Financial Engineers.

3.Education Track
Computational Finance has emerged as a very prospective career for people with strong mathematical abilities like those coming from Science in class XII. It is the better career option than any other engineering degree, maths, statistics, physics degree course. This is an interesting career option as it enables students to apply their numerical skills in Finance better than engineering or science graduates. Financial engineers are popularly known as “quants”.

The financial engineering course includes Applied Mathematics, Operations Research, Theoretical Physics, Mathematics, Computer Science, Computer Engineering, Mechanical Engineering and Electrical Engineering. Financial Engineering helps to gain an in-depth knowledge to perform the delivering risk models and trading directly, library control, model validation, risk management and programming. The main branch includes (i)finance and economics and (ii)Mathematics.

  1. Finance and economics: Hedge funds and banks frequently seek financial engineers with math background. However, there are asset managers who appoint trained economists, especially those with PhD.
  2. Mathematics: Financial engineers should possess knowledge in linear algebra, spatial geometry stochastic calculus, and familiar with differential equations. Mathematics is a part of the financial engineering syllabus and gaining expertise will help in simulating financial models.
Following is the list of few top universities that offers financial engineering courses. Most of them are based in USA and UK.
  • American University, USA
  • Bar-Ilan University, Israel
  • Baruch College, New York University, USA
  • Bogazici University, Turkey
  • Boston University School of Management, USA
  • Carnegie Mellon University, USA
  • Case Western Reserve University, USA
  • Claremont Graduate University, USA
  • Clark University, USA
The Indian university mostly offers Certificate courses such as CFA, CQF and FRM courses. Both bachelor's and master's programs often include an internship as part of the requirements. These programs mould the graduates to develop career as a financial writer, consultant, commodities risk manager and financial analyst.

4.Specialization in Financial Engineering:
Apart from qualifications, the quants require skills for competitive advantage, despite of the country you choose to work. The following is the list of specialization in finance engineering. One can choose many among them to expertise in their graduation for better future.

  • Financial Engineering and Risk Management
  • Financial Markets and Investment Strategy Specialization
  • Business and Financial Modeling
  • Formal Financial Accounting
  • Financial Management
  • Personal & Family Financial Planning
  • The Global Financial Crisis
  • Financial Planning for Young Adults
  • Introduction to Financial Accounting
  • Digital Transformation in Financial Services

Specialization in India
There are many Institutes and Corporate Bodies in India that train new talents in Financial Engineering and various aligned courses. Executive programs in Algorithmic Trading (E-PAT) and Certificate in Quantitative Finance (CQF) are two of the most advanced courses that will get you prospect jobs in right direction.

Master of Financial Engineering (MFE) -2 Years (Full Time)
The Master of Financial Engineering (MFE) program, conducted by the School of Financial Engineering (SoFE) set up jointly by IIQF and MUIT University, prepares students for technically sophisticated jobs with financial institutions, financial service providers, financial consulting services and financial software companies. The program is intended for students seeking comprehensive technical knowledge of vanilla and exotic derivatives pricing, hedging, trading and investment strategies and portfolio management in equity, currency, interest rates, credit, etc.

Bachelor of Computational Finance (BCF) -3 Years (Full time)
The Bachelor of Computational Finance (BCF) program, conducted by the School of Financial Engineering (SoFE) set up jointly by IIQF and MUIT University, program prepares students for technically sophisticated jobs with financial institutions, financial service providers, financial consulting services and financial software companies. 

Distance education:
To master in Master of Financial Management degree course one can be graduates of recognized universities. This distance learning post graduate Financial Management program is offered over 2 or 3 years. One can acquire a deep knowledge if they have already exposure to management services, corporate planning, project planning and control, management audit, marketing analysis, internal audit or economic analysis.

There is a high need for qualified quants in the market. The demand for new quants is particularly high in structured finance establishments. The demand for quants will increase, as the market gains higher traction. Emphasis will be on credit and risk ventures. Hence along with talent there are lot of skills that are required to shine in the finance field to succeed in interviews and ensure a great career. Moreover, the world of systematic, quantitative, algorithmic and automated trading offers various openings for quants.

The level of competition is high for entry-level quants as they need to express their programming skills, knowledge of artificial intelligence methods and statistical theories. Good experience with languages like Python, Java, C++ and Scala is essential for financial engineering. The job seekers can find positions in investment markets as they are the future in the next decade. Hence they can find jobs in hedge funds, asset management firms, banks and proprietary trading.

Companies often employ people with advanced degree in Financial Engineering and these specialists work as investment managers, bankers or traders using their financial engineering background to improve the quality of existing investment products.

6.Future of Financial Engineering:
In India, finance is one of the finest fields to build a better career. Especially in a growing market like India, the finance engineering need is very high as the market requires more new techniques to be incorporated in it. The career prospectus is good for a finance engineer in India and it provides excellent growth opportunities. After successful completion of financial engineering course, one can expect great opportunities from different financial sectors like banking, insurance, security trading and in engineering consultancies.

Incorporating Finance Engineering:
The following are the areas where a Finance engineer can fit himself to prove his talent. i. Along with finance, the engineer who possess sufficient computer programming skills can build simulating financial models to learn about market behavior. These simulations help the financial engineer to generate results, as much accurate as possible. Hence the job is termed as financial analyst. ii. As financial analyst, the financial engineer helps to develop profitable investment plans for individuals and companies. iii. Companies and high net-worth individuals often take help from financial engineers to design a portfolio which places the complete investment capital at risk. iv. In the last decade, governments and financial institutions have started to hire financial engineers for advising or consulting governments (local, state or central) with market economies. v. As a financial engineer, one can associate himself as an employee of any reputed financial institution or setup his own consultancy or do both.

Salary: The median salary of financial engineers in USA is 91,330 USD. In India , though the financial engineering is a new field, it is a gratitude for those with Masters in Science with Financial Engineering Degree who has 1 to 4 years of experience, can get salary above 900,000 INR.

7.Job Roles and Sectors:
The job position of a financial engineer requires candidates with expert mathematical and computer programming skills. Graduates with a bachelor's degree may work with banks or other financial firms, but may also find opportunities as financial writers or product specialists, interest rate developers, commodities risk managers, model reviewers, administrative officers, treasury capital analysts or IT managers.
The job roles in Finance Engineering are as follows:

  • Analyst
  • Broker
  • Business Analyst
  • CEO
  • Consultant
  • Director
  • Lecturer
  • Managing Director
  • Operations Research Analyst
  • Portfolio Manager
  • President
  • Professor
  • Quantitative Analyst
  • Research Engineer
  • Trading Strategist
  • Vice President

Job Sectors:
Banks, PMS, Mutual Funds, Private Equity Companies, Hedge Funds, Investment Banks ,Firms that trade in Commodities, Currencies and other Instruments, Credit Rating Agencies, Securities Research firms ,IT & ITES, KPO firms engaged in Analytics, and Quantitative Research and Business Solutions.