Financial Engineering

monetary Engineering Introduction Many innovations are fetching place in the place of arena of finance. Such innovations are collectively called monetary innovation. monetary innovation is a process to adapt active financial instruments and processes and to develop new one so as to alter financial market participants to cope more effectively with the changing world. In recent years fast developments are taking place in corporate and banking sectors. This has given birth to a new discipline which has arrest to called financial design science.The bourne financial technology was introduced by London banks. fiscal 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 practice of programming. 1It has too been defined as the application of technical methods, especially frommathematical 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, reckoner science,statisticsandeconomic theory. In broadest definition, anyone who uses technical tools in finance could be called a financial engineer, for example anycomputer programmerin abankor any statisticianin a government economic bureau. However, most practitioners restrict the term to someone educated in the full range of tools of modern finance and whose work is informed by financial theory. It is sometimes restricted in time further, to cover only those originating new financial products and strategies.Financial Engineering refers to the bundling and unbundling of securities. This is through with(p) in order to maximize profits using different combinations of equity, futures, options, touch on income, and swaps. They apply theoretical finance and computer mod eling skills to make pricing, hedging, job and portfolio management decisions. Financial Engineers are prepared for careers in * Investment Banking * embodied 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 subject is based. These includes valuation theory, portfolio theory, hedging theory, tax treatment etc. * Physical tools It includes the instruments and processes which can be combined together to accomplish some specific purposes. Factors contributing to the result of Financial Engineering * Environmental Factors (External Factors) A) Change in price level B) Globalization of marketsC) Technological advancement D) Differential tax rates * interior(a) Factors A) Liquidity needs B) Risk aversion C) Agency Costs D) method of accounting benefits Financial Reen gineering Financial reengineering is the concept of 21st century. Really speaking, it is an evolving concept. It is an extension of financial engineering. Newer and newer developments are taking place now in finance and think fields. Hence the existing instruments and processes must reengineer to suit the changing environment. This gives birth to financial reengineering.