Financial engineering is a branch rooted in finance that applies the basic principles of engineering, programming, and math.It can be defined as the application of mathematical methods to various solutions of finance related issues. The core of financial engineering includes applied mathematics, computer science, statistic and economic theory.
A Financial engineer generally works in investment banks, commercial banks, insurance companies, corporate treasuries and various other regulatory companies. These sectors use methods and concepts of financial engineering to the issues faced as a new product development, risk management, portfolio structuring and simulation.
Financial engineering comes up with numerous specializations:
- Computational Finance
- Computational finance is one of the majors that fall under financial engineering that come in around 1980s.
- Alternatively, it is also referred as “financial mathematics”.
- Computational finance majorly focuses on practical numerical methods and techniques to be applied to economic analysis.
- Risk Management
- Risk management can be defined as a process that identifies, analyses, controls risk by avoiding, minimizing and/or eliminating it.
- Factors such as risk assumption, avoidance, retention, transfer can be used by an organization in order to manage future events.
- Corporate Finance
- Corporate finance deals with a wide aspect of finance including capital investment, banking, budgeting and operations.
- This process aims to maximize the value for shareholders with the help of short and long term financial planning.
- Corporate finance aims to provide shareholders with maximum value for the money invested.
- Algorithmic and Technical Finance
- It can be defined as a branch under financial engineering that aims to bridge computer science along with finance. It includes high frequency and algorithmic trading, portfolio management, agent based finance, market efficiency, automated textual analysis, behavioral finance, etc.
From engineers interested in financial markets to finance professionals interested to focus more in the analysis of the field tend to grow in this domain and must look into these directions for the future.