What Does Financial Engineering Mean?

Financial engineering

22SEP

What Does Financial Engineering Mean?

It means the creation of new and improved financial products through innovative design or repackaging of existing financial instruments.

Financial Engineering is a multidisciplinary field involving financial theory, the methods of engineering, the tools of mathematics and the practice of programming. It is about the securities, banking, and financial management and consulting industries, or as quantitative analysts in corporate treasury and finance departments of general manufacturing and service firms.

Financial engineering works in other environments as well. The financial theory of offering several existing products under one package has become very common in the telecommunications industry. Many providers today offer bundled service packages that include local phone service, unlimited national long distance, Internet service, and cable or digital satellite television. The end result of this type of arrangement means one lower price to obtain three or more services at significant cost savings to the consumer.

AIMS

Sometimes known as computational finance, financial engineering relies heavily on mathematically calculating the outcome if various combinations of financial instruments are offered under one umbrella as a package deal. Usually, the calculations indicate that the providers stand to do very well with the new hybrid financial product, as the product holds the potential to attract new consumers who would have foregone use of one or more of the instruments if the only option was to purchase them individually.

Areas of application:

• Investment banking
• Forecasting
• Corporate strategic planning
• Securities trading and financial risk management
• Derivatives trading and risk management
• Investment management
• Pension scheme
• Insurance policy
• • Credit default swap
• • Market mechanism design