What is Financial Engineering?
Financial engineering is the vernacular term for a group of capital management strategies that, as it is currently practiced, is dominated by financial institutions and financial engineers. It can encompass any form of investment strategy including cost-benefit analysis, market timing of investments, risk management using derivatives and hedging instruments, market studies on asset allocation and trading policies.
Financial engineering is a lot more than just crunching numbers or analyzing data. That’s because engineers and experts in the field take on the task of transforming and constructing a corporation’s financial statements into tools that can be used to improve a company’s performance. They work with management to analyze every aspect of the business, from its growth prospects, to its organization structure and financial system design.
As we all know, many industries are facing a long-term shift away from fundamental data processing to more diverse and creative ways of interacting with customers. To address this market need, financial engineers look at how their clients use data to shape their interactions with customers. The goal is to better understand how they can use data and analytics to improve their performance.
Financial engineers often use statistical and mathematical models to create visualizations that people can understand. They make use of software such as SAS, QuantLib or Matlab to conduct data analysis across multiple sources. And they work with clients to develop their own custom financial modeling tools using computers. This can be complex work; financial engineers must know how to program in at least two languages like C++ or Java as well as two more used in the financial industry, such as Python and COBOL.
Like management consultants, Fintalent’s financial engineering consultants work on a contract basis for a particular project or for a series of projects related to a client’s business. In other words, financial engineers are hired by the hour or by the project and don’t receive long-term positions with their clients.
Financial engineers will often start out in data manipulation jobs and they can eventually move up to project management roles. Because financial engineering is an emerging field, there aren’t many places where you can find positions that are guaranteed as such. Instead, you must apply for a financial engineering job or look for opportunities to work on short-term contracts.
Financial engineers should be able to identify complex business problems, using advanced math and computer skills. They must also be good at gathering and processing data for analysis. Financial engineers must be comfortable with computer programming, since many of the financial modeling products they design run on a software platform that’s built from code. And they should have an appreciation for the business world and an interest in the operational side of a company.
Financial engineering is often confused with finance engineering—that is the process of transforming and refining an existing corporation’s financial statements into tools that can be used to improve company performance. But there are actually many different definitions of financial engineering and they differ based on the goals and intentions of those who use them.
A financial engineer or quant (from quantitative analyst) is a professional who applies mathematical modeling, statistical analysis, computer programming and especially computational mathematics to areas of finance such as investments, portfolio management, asset pricing and risk management.
Financial engineering is a relatively new discipline that combines mathematical, statistical and computational methods with business knowledge. Financial engineers work for banks, investment firms, insurance companies, brokerages and consultants who provide financial analysis and advice to help their clients manage their assets and plans more effectively.
Financial engineering can be applied in many different fields within finance. The work can vary depending on the type of client you’re working with, the scope of your job duties and your location. There are also different types of financial engineers; they take on roles like data scientist, quant or manager. Financial engineers you might want to know more about include:
Like any position that requires specialized skillsets, becoming a financial engineer requires years of experience and training which is why Fintalent offers a rich pool of financial engineering consultants available for hire.
