Financial Engineering - Explained
What is Financial Engineering?
Written by J. Mance Gordon
Updated at April 22nd, 2024
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What is Financial Engineering?
Financial engineering (or quantitative analysis) is the application of various technical fields, particularly applied mathematics and computer science, to the development of financial products - such as derivative assets.
Financial engineering is generally carried out by banks, managed funds, and insurance agencies.
How Does Financial Engineering Work?
Financial engineers or quantitative analysts employ mathematics and computer systems to develop approaches to analyzing and creating new investment vehicles, investment models, trading strategies, and other forms of financial instruments.
The objectives of these approaches are to develop new methods of investing money and determining how these investments will perform. Many derivative assets (investments that derive their value from other assets) were developed using financial engineering. High-powered computers applying sophisticated mathematical formulas are able to project how certain assets will perform with respect to other assets.