financial engineering

Financial engineering involves “the application of technical methods … in the practice of finance.” As a financial engineer, to analyze current financial trends, you’ll use concepts from:

  • mathematics
  • economic theory
  • statistics
  • computer science

Using this knowledge to create financial models for individuals and businesses requires a strong foundation in several key areas.

Finance

To become a financial engineer, you’ll likely have to learn about several areas of finance. Establishing a solid financial background during your first two years of college is helpful when it comes time to study for your Bachelor’s degree. Finance courses give you an understanding of the principles involved in risk management so that you can help businesses and organizations plan for the financial risks that they face in a fluctuating market. You’ll also be better equipped to guide individuals and corporations in making smart investment decisions.

Economics

Courses in economics provide deeper insight into how the ups and downs of the market are affected by different financial parameters. Understanding how these mechanisms work together is important when it comes to interpreting data and using it to give helpful financial advice. A financial engineering degree may involve studying specific branches of economics such as econometrics. This is a discipline that uses math to describe an economic system. Econometrics involves knowledge acquired in other financial engineering courses, including:

  • basic mathematical principles
  • statistical analysis
  • the stochastic process

Computer Science

Analyzing and interpreting changes in financial markets requires strong knowledge of programming and computer modeling. Conditions can shift quickly in the world of finance. You need a way to visualize what’s going on so that you can make accurate predictions as a financial engineer. Study multiple programming languages and become familiar with the best available software. This enables you to:

  • create precise simulations of current market conditions
  • use these models to project what’s likely to happen in the future

This information is valuable to companies whose financial stability relies on the state of the market.

Statistics

Probability factors largely into all financial disciplines. Being able to pinpoint, interpret and understand trends in the market is a core part of being a financial engineer. Statistics courses prepare you for this complex process. You’ll also learn:

  • how to leverage data mining to obtain new information about the market
  • how to visualize that information
  • how to use the principles of analytics to forecast future developments in the financial sector

This produces a clear picture of:

  • risk levels and volatility in the current market
  • what effects these factors will have in the foreseeable future

Stochastic Process

A stochastic process is one in which a collection of random variables represents how a complex process changes over time. Taking a course in this helps unravel the potentially confusing principles involved. It gives you a powerful tool for understanding financial trends and fluctuations. One particular type of stochastic process is used to gain insight into how a system may change in the future depending on its current state. The financial markets themselves are made up of random variables. Understanding the stochastic process in tandem with statistics and probability makes it possible to determine how today’s market will affect the financial security of individuals and businesses.

Do you enjoy working with numbers and discovering trends in mathematical systems? A degree in financial engineering can open up many fascinating career paths in industries such as:

  • finance
  • business
  • education

Many employers look for candidates with a master’s degree, so be prepared to study for several years to learn the disciplines required.

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