Mastering the financial equation

Usha Albuquerque

If you are a super-whiz at maths and can quite happily spend hours going through financial and stock market reports, or an engineer not too enthused about a technical career you may like to consider the field of financial engineering.

What is financial engineering — an engineering degree, or a finance qualification? As the name suggests — it is both.

The upsurge in the role of finance and accounting, along with the communication revolution has transformed the nature and speed of business transactions. Every business activity is today measured in quantitative terms not only in relation to commodities, products, assets and investments, but also in relationship to other financial instruments like currencies, options, futures, derivatives and so on.

Financial Engineering has therefore evolved as a field that applies mathematical frameworks to decisions about saving, investing, borrowing, lending and managing risk in the fields of investment management in general.

Financial Engineering in India gained prominence as multinational financial giants such as Deutsche Bank, BNY Mellon, Goldman Sachs, Credit Suisse, Morgan Stanley, Citibank and others began to set up Quant support teams and Risk Analytics teams in India, using the techniques of financial engineering extensively to provide support services for business process outsourcing, private equity funds, family wealth offices and even managing accounts.

With the growth of the hedge fund industry financial engineering has been given an added boost in India and is currently in demand by stock brokers, financial advisors and even students who have a head for complex mathematical methods.

Role and responsibilities

The major responsibilities for a financial engineer are to –

• Develop analytical systems and strategies for financial decision making.
• Research trends in big data, credit assessment procedures and fiscal services.
• Provide backend development for analytical processes.

Financial engineers work with global investment banks, hedge funds, proprietary trading companies, and asset management firms using quantitative software and systems, quantitative analytics and modeling, algorithms and so on. A solid understanding of applied mathematics, economic theory, statistics, computer science and investment models is therefore absolutely necessary for a financial engineer. Knowledge, and experience in areas such as capital markets, financial technology, and computational finance enables qualified financial engineers to move into top financial services companies.

Getting in

A financial engineering career is possible for people who are good at mathematics, statistics or have an engineering background. Financial engineering is a highly specialized finance field which requires a strong background in Electrical Engineering, Computer Science or mechanical Engineering, Operations Research, Applied Mathematics, Mathematics, or Theoretical Physics, very strong programming skills in core languages, along with a solid knowledge of statistical, neural network and/or artificial intelligence methods.

Job prospects

After successful completion of a Financial Engineering programme you can find excellent opportunities in the banking and insurance sector, engineering consultancies and security trading.

The main career duties would be to create wealth by trading the company’s capital, create new financial products, conduct risk management and measurement, and manage investment portfolios.

This growing prominence of financial engineering in India has made it an important part of finance teams in broking firms, fund management companies or even banks.

India as an emerging nation is seeing a spate of innovations in the area of financial services including that of financial engineering. These financial innovations will continue to play a significant role in the creation, development and dissemination of new financially engineered products, and will require dedicated professionals using financial innovations intelligently and productively. If you are up to the challenge, have the mathematical mind and statistical skill, this could be the start of an exciting new career.

Multi-role field

• Financial Engineering is a multidisciplinary field involving the application of theories from financial economics, mathematics, statistics, physics and econometrics using complex tools and techniques of numerical analysis, the methods and tools of engineering, and the practice of computer programming to solve the problems of Investment Finance.
• In today’s Algorithmic Trading, the fully automated trading is done by the computer where the algorithms are based on mathematical models which take the trading decisions and generate the orders, and the technology helps to execute these orders. This has seen an increased demand for finance professionals not only with trading and finance knowledge but also knowledge about writing and coding quantitative strategies and basics of quant finance, and in implementing them on advanced trading platforms.

Where to study

There are several financial training institutes offering post-graduate courses in financial engineering and allied subjects. Admission to most courses is on the basis of a test to assess the competency level of the candidate in subjects such as finance, mathematics & statistics, and programming. Some of the Institutes include –

• Indian Institute of Quantitative Finance — offers several finance programmes including a Post Graduate Program in Financial Engineering,
• The Indian Institute of Capital Markets, Navi Mumbai offers a short six-month certificate programme in Financial Engineering and Risk Management for middle and senior executives working in banks, primary dealers, mutual funds, financial institutions, equity research firms, investment banks, corporate financial risk managers, brokerage houses and other financial services industry.
• National Institute of Securities Markets -an educative initiative of SEBI Certificate in Financial Engineering & Risk Management (CFERM)
• The BSE Institute offers a Certification Programme on Financial Engineering.