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Iran, Islamic Republic Of

November 22, 2013

Financial engineeringFrom Wikipedia, the free encyclopedia 

Financial engineeringis a multidisciplinary field involving financial theory, the methods of engineering, the tools of mathematics and the practice of programming.[1] It has also been defined as the application of technical methods, especially from mathematical finance and computational finance, in the practice of finance.[2] Despite its name, financial engineering does not belong to any of the fields in traditional engineering. In the United States, the Accreditation Board for Engineering and Technology (ABET) does not accredit financial engineering degrees.[3] In the United States, financial engineering programs are accredited by the International Association of Financial Engineers.

Financial engineering draws on tools from applied mathematics, computer science, statistics and economic theory.[4] In broadest definition, anyone who uses technical tools in finance could be called a financial engineer, for example any computer programmer in a bank or any statistician in a government economic bureau. However, most practitioners restrict the term to someone educated in the full range of tools of modern finance and whose work is informed by financial theory.[5] It is sometimes restricted even further, to cover only those originating new financial products and strategies.[

Computational finance and mathematical finance are both subfields of financial engineering. Computational finance is a field in computer science and deals with the data and algorithms that arise in financial modeling. Mathematical finance is the application of theoretical mathematics to finance.[6]

Quant is a broad term that covers any person who uses math for practical purposes, including financial engineers. Quant is often taken to mean “financial quant,” in which case it is similar to financial engineer.[9] The difference is that is it possible to be a theoretical quant, or a quant in only one specialized niche in finance, while “financial engineer” usually implies a practitioner with broad expertise.[10]

“Rocket scientist” is an older term reserved for the first generation of financial quants who arrived on Wall Street in the late 1970s and early 1980s.[11] While basically synonymous with financial engineer, it implies adventurousness and fondness for disruptive innovation.[12] Rocket scientists were usually trained in applied mathematics, statistics or finance; and spent their entire careers in risk-taking.[13] They were not hired for their mathematical talents, they either worked for themselves or applied mathematical techniques to traditional financial jobs.[5][12] The later generation of financial engineers were more likely to have PhDs in mathematics or physics and often started their careers in academics or non-financial fields.[14]

The first degree programs in financial engineering were set up in the early 1990s. The number and size of programs has grown rapidly, so now some people use the term “financial engineer” to mean someone who has a degree in the field.[4]

An older use of the term "financial engineering" that is less common today is aggressive restructuring of corporate balance sheets. It is generally (but not always) a disparaging term, implying that someone is profiting from paper games at the expense of employees and investors

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