Bringing technical tools, mathematical practices and engineering methods into the realm of finance is called financial engineering (FE). Before a company considers offering financial products or services to its customers, it conducts financial analysis to determine whether or not its proposed offerings will provide long term profitability. The analysis results require a high degree of accuracy because the company’s reputation and market share are on the line. Financial engineers who are well versed in an array of interdisciplinary tools and financial theory are often called upon to conduct this type of quantitative risk management. Here is an overview of the financial engineer role, degree programs that support the function, common skill set of financial engineers and popular careers for financial engineers.
Financial Engineer Versus a Traditional Finance Professional
The FE discipline is more technical and quantitatively based than the traditional finance discipline. While the field of finance uses knowledge of economic theory and models to reach its end goal of managing the money of firms or individuals, it is the financial engineer who creates improved financial models using knowledge of applied mathematics, programming and algorithms. The field of FE is also similar in scope to the discipline of actuary science. However, actuaries mainly use current models and theories to determine risk for insurance products, but they do not necessarily build more precise financial models using tools from other disciplines. Early American financiers like Anthony Drexel and J.P. Morgan are examples of finance professionals who performed as financial engineers without the help of complex computer applications.
Degree Programs for Financial Engineers
Because of the interdisciplinary nature of the subject, a number of academic majors can serve to prepare students to become financial engineers. In fact, many applied mathematics, computer science and physics graduates are employed as financial engineers. However, reputable academic institutions have responded to increased industry demand for these professionals, and they now offer advanced and doctoral degree programs in financial engineering. Some of the course topics that FE students can expect to take include stochastic calculus, quantitative asset management and computational methods in finance. Most students find that the rigorous course work pays off, and top tier FE programs boast 100 percent employment placement rates within six months of graduation.
Set of Skills Mastered by Successful Financial Engineers
The set of skills that are developed by financial engineers are broad and carry much weight in the finance community. For instance, financial engineers graduate with practical knowledge of analysis and forecasting tools, common simulation models to conduct asset valuation, as well as probability and statistics. They also become efficient programmers through courses in C++, Java and MATLAB languages.
Jobs for Financial Engineers
Most of the jobs for financial engineers can be found in the financial services industry where many financial engineers are employed as risk managers, financial traders or financial research consultants with agencies like the Federal Reserve. Other employment options with companies like Google are available to financial engineers who have experience with improving technical processes through the use of algorithms.
Conclusion
While no one can fully predict the future, financial services organizations rely on the skills of financial engineers to come close. Financial engineers know how to identify the appropriate financial theories and computational tools to apply to various scenarios within the financial services industry, and many of the financial and insurance products that are on the market today are the results of financial engineering.
