Financial engineering is the application of mathematical and computational techniques to the design and analysis of financial products and financial markets. It combines elements of finance, mathematics, and computer science to solve financial problems and create new financial products.
Some key topics that are often covered in a course on financial engineering include:
- Financial instruments and markets: This includes an introduction to different types of financial instruments such as stocks, bonds, and derivatives, as well as an overview of financial markets and their role in the economy.
- Risk management: This involves understanding and measuring different types of risk, such as market risk, credit risk, and liquidity risk, and developing strategies to manage and mitigate these risks.
- Quantitative methods: This includes the use of mathematical and statistical tools to analyze financial data and make informed decisions. Topics may include probability theory, statistics, and optimization.
- Financial modeling: This involves developing mathematical models to represent financial phenomena and make predictions about future events.
- Derivatives: This includes the study of financial instruments whose value is derived from the value of an underlying asset, such as options, futures, and swaps.
- Corporate finance: This covers the financing and investment decisions made by firms, including capital structure, dividend policy, and mergers and acquisitions.
- Financial regulation: This covers the laws and regulations that govern financial markets and institutions, including topics such as capital requirements, risk management, and consumer protection.
In addition to these core topics, a course on financial engineering may also cover more specialized topics such as structured finance, behavioral finance, and high-frequency trading.