Financial Engineering

pecuniary engine room Introduction M some(prenominal) innovations argon taking note in the place of argonna of finance. Such innovations are collectively called monetary innovation. Financial innovation is a process to admit existing financial instruments and processes and to develop new one so as to enable financial market participants to cope more effectively with the ever-changing world. In recent years fast developments are taking place in corporate and banking sectors. This has given alliance to a new curb which has come to called financial engineering.The term financial engineering was introduced by capital of the United Kingdom banks. Financial engineering is the life blood of financial innovation. Financial Engineering Financial engineeringis a multidisciplinary field involving financial theory, the methods of engineering, the tools of mathematics and the go for of programming. 1It has also been defined as the application of adept methods, especially from mathemati cal financeandcomputational finance, in the practice offinance. In the United States, financial engineering programs are accredited by theInternational Association of Financial Engineers.Financial engineering draws on tools fromapplied mathematics,computer science,statisticsandeconomic theory. In broadest definition, anyone who uses technical tools in finance could be called a financial engineer, for example anycomputer programmerin abankor anystatisticianin a government economic bureau. However, most practitioners determine the term to someone educated in the full range of tools of new-made finance and whose work is informed by financial theory. It is sometimes cut back even further, to cover only those originating new financial products and strategies.Financial Engineering refers to the pack and unbundling of securities. This is done in order to maximize profits using contrary combinations of equity, futures, options, fixed income, and swaps. They apply theoretical finance an d computer modeling skills to make for pricing, hedging, trading and portfolio management decisions. Financial Engineers are prepared for careers in * investment funds Banking * Corporate Strategic Planning * Risk Management * Primary and Derivatives Securities valuation * Financial Information Systems Management Portfolio Management * Security Trading Tools of financial engineering * Conceptual Tools It includes ideas and concepts on which finance as a put forward is based. These includes valuation theory, portfolio theory, hedging theory, tax treatment etc. * Physical tools It includes the instruments and processes which keep be combined together to accomplish some specific purposes. Factors add to the growth of Financial Engineering * Environmental Factors (External Factors) A) Change in charge level B) Globalization of marketsC) Technological advancement D) Differential tax rank * Internal Factors A) Liquidity needs B) Risk aversion C) Agency cost D) Accounting benefits F inancial Reengineering Financial reengineering is the concept of 21st century. Really speaking, it is an evolving concept. It is an prolongation of financial engineering. Newer and newer developments are taking place now in finance and related fields. Hence the existing instruments and processes must reengineer to suit the changing environment. This gives birth to financial reengineering.