Financial Engineering. Tools


 
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Financial Engineering. Tools
Oscar Pyngrope, Student (MBA), India

WHAT IS FINANCIAL ENGINEERING?
Financial Engineering (FE) involves the design, development and the implementation of innovative financial instruments and processes, and the formulation of creative solutions to problems in finance.

TOOLS OF FINANCIAL ENGINEERING
FE concepts can be divided into two broad categories:
  • CONCEPTUAL TOOLS: These conceptual financial engineering concepts involve the ideas and theories which underlie finance as a formal discipline.
    Examples of conceptual tools include portfolio theory, valuation theory, hedging theory and accounting relationships.
  • PHYSICAL TOOLS: These physical instruments of FE include the tools and processes which can be pieced together to accomplish some specific purpose.
    Examples of conceptual tools are: futures, options, swaps, equities, fixed income securities etc.
    Examples of conceptual processes are: public offerings, private placements of securities, electronic securities trading, electronic fund transfer etc.
    By combining physical FE tools in different ways, financial engineers can design solutions for a wide array of problems.
MAIN APPLICATION AREAS OF FINANCIAL ENGINEERING
FE is applied in many areas of finance, but notably in:
  • Trading of financial assets
  • Valuation of financial assets
  • Pricing of financial assets
  • Execution of financial assets
  • Corporate finance
  • Derivatives
  • Financial regulation
  • Portfolio management
  • Risk management
  • Structured products
Note that the name "financial engineering" is slightly misleading in that it does not belong to any of the fields in traditional engineering.
Source: John F. Marshall and Vipul K. Bansal, "Financial Engineering: A Complete Guide to Financial Innovation ", 2013, pp. 3-8

 
   















 

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