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Meaning and scope of financial engineering

Financial engineering
is the process of employing mathematical finance and computer modeling skills to make pricing,hedging,
trading and portfolio management decisions. Utilizing various derivative securities and other methods,
financialengineering aims to precisely control the financial risk that an entity takes on. Methods can be
employed to take onunlimited risks under certain events, or completely eliminate other risks by utilizing
combinations of derivative and othersecurities.
Areas where financial engineering techniques are employed include:
nvestment banking
!orporate strategic planning
"isk management
#rimary and derivative securities valuation
$waps % derivatives trading or dealing
&inancial information systems management
#ortfolio management
$ecurities trading
TOOLS OF FINANCIAL ENGINEERING
FACTORS CONTRIBUTING TO THE GROWTH OF FINANCIAL ENGINEERING
#rice 'olatility
(lobalisation of Market
)a* Asymmetry
"egulatory !hanges
+iquidity ,eeds
Accounting -enefits
Financial Engineering

Financial Engineering is a multidisciplinary field that include finance, computer


science, methods of engineering, mathematics, statistics and actually is the
focus of variety kinds of research.

The complexity of the business as well as the financial market and all markets
interaction demands today more diverse and accurate financial tools.

Financial Engineering can consider any business and can look at all the process,
translating on financial equation all the operational system. Many markets
participants, even non financial firms, would greatly benefit from financial
engineering tools and capital markets if they can understand financial products
that are available.

Firms want to capitali!e through the market.

Entrepreneurs need to evaluate their business viability and cash flow


estimation.

"nvestors want revenues#risk pro$ections before decisions.

%rowers need to understand and theirs market risks metrics &from


commodities or exchange rates fluctuation or climate changes' and protect
themselves from future uncertain.

(peculators want to get information about markets dynamics to profit on


prices changes.

)anks need to know risk metrics &volatility, credit risk' of diverse assets
exposures, to provide financial services.

*ublic and *rivate "nstitutions need to manage their assets and liabilities.

Many "nstitutions decide to interact directly with the capital market and,
differently from others software#based industries, the interaction with the
market have particularities.

(ome of this technologies is controversial because of the danger of a bad


pro$ected software can cause. +uality procedures, such design#prototype#
develop#track, software engineering process, simulation, sensitivity analysis,
robust optimi!ation can address the technological risk as well other financial
risks.