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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
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.
)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.