What is Financial Engineering?
Financial engineering is an interdisciplinary branch of the investment industry that makes use of applied mathematics, statistics, computer science, financial theory, and economics to conduct quantitative analysis on the financial markets. The field focuses on developing models and techniques to develop and test investment strategies, to envision and create new financial products, to manage risk, and to produce scenarios and forecasts for both short- and long-term perspectives on the markets.
What Does a Financial Engineer Do?
Financial engineers (also known as quantitative analysts or quants) are practitioners in the financial industry who are responsible for developing, testing, and improving on models, tools, and techniques that are prevalent in quantitative finance. They work on creating new investment products, models, and strategies for individual investors and institutions. Much of their work centres on investment analysis and encompasses trading, hedging, risk management, and portfolio management. In addition to managing a wide range of quant models and methods, financial engineers may specialize in derivatives and option pricing, structured products, algorithmic trading, high frequency trading, or machine learning as part of their quant tool kit.
In recent decades, the application of quantitative models has grown substantially and created many opportunities for financial engineers across a wide array of firms and locations around the world. Financial engineers are employed by investment banks, hedge funds, asset managers, commercial banks, insurance agencies, and consultancies to the financial industry. They also work in corporate treasuries, regulatory agencies, and in international quasi-governmental organizations like The World Bank.
How to Become a Financial Engineer
The field of quantitative finance has been growing steadily since the 1970s, but financial engineering as a specific field of academic study has only existed since the 1990s, with professional qualifications, like the Certificate in Quantitative Finance (CQF), and university programs, like Masters in Financial Engineering (MFE), being launched to provide a career path in to the industry.
A career as a financial engineer will require a strong background in calculus, probability and statistics, and computer programming at the undergraduate/graduate level. However, for working professionals, the CQF offers a rigorous practitioner-focused credential with a solid grounding in financial markets and securities, derivatives, fixed income models, credit models, risk management, portfolio management, machine learning, and computer science/python programming.
Financial Engineering Applications
Financial engineering is used to address a wide range of challenges and opportunities in the financial world. It is applied across diverse areas such assecurities analysis, derivatives and option pricing, structured products, trading and arbitrage (including algorithmic trading), portfolio management, risk management (including credit risk management), behavioral finance, machine learning as applied to investment strategy and portfolio management.Financial engineers explore patterns and trends in financial markets and seek to understand the behavior of market participants, potentially leading to insights on investment and/or hedging strategies or hedging. Alternatively, a financial engineer might delve deeply into areas of machine learning like natural language processing or analysis of alternative data sets to develop ideas for further research and testing.
As a professional enclave within the global capital markets, financial engineering continues to expand, with skilled employees in high demand. It is an exciting area of study and a great time to consider your options on the path towards a career in quantitative finance.
Download a brochure today to find out more about the CQF program and how it couldenhance your quant skillset.
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