Financial Engineering: An Overview for High Schoolers

[zaboda42]

so I'm a senior in high school looking at some career options right now. i stumbled across financial engineering and wanted to know what you all thought about it? can anyone please shed some light on this degree for me? how many years of undergrad/grad school do you need before you start making a salary? what exactly do they do in this field of work?

 

[Klockan3]

Finance mathematicians are basically helping Banks and such develop and utilize mathematical models for how to best invest their money. Financial engineering is all about maths and nothing about typical engineering stuff which is why it is usually not called financial engineering.

 

[djeitnstine]

Would this be akin to actuary?

 

[chroot]

You're either in finance or in engineering, not both. I would suggest that you take some classes in both fields in your first few years of college, and see which you like best. You don't need to decide anything yet!

- Warren

 

[j93]

You're either in finance or in engineering, not both. I would suggest that you take some classes in both fields in your first few years of college, and see which you like best. You don't need to decide anything yet!

- Warren

http://en.wikipedia.org/wiki/Financial_engineering
http://www.ieor.columbia.edu/pages/graduate/ms_financial_eng/index.html
http://www.haas.berkeley.edu/MFE/

 

[changeseeker]

Would this be akin to actuary?

No. A financial engineer is NOT an actuary.

 

[changeseeker]

so I'm a senior in high school looking at some career options right now. i stumbled across financial engineering and wanted to know what you all thought about it? can anyone please shed some light on this degree for me? how many years of undergrad/grad school do you need before you start making a salary? what exactly do they do in this field of work?

I worked in investment banking for a while, so I can give you a taste for it.

• First, what is financial engineering?

It is basically a field of mathematicians (broadly defined) working at investment banks (usually, on the sales and trading desks, though this varies by bank) who spend their entire days figuring out new mathematical formulas to make money. Options and derivatives are the classic cases. In investment banking, they were considered the geeks of banking. They rarely interacted with the outside world, including other bankers.​

• Second, what about the degree?

You don't need a degree in financial engineering. All you need is a strong background in applied mathematics and theoretical statistics. In the early days, people who did financial engineering were essentially economists (a bachelor's was sufficient), though no one called it financial engineering back then. By the 90's, PhD's in Finance were in vogue. I had a friend who had a PhD in Finance from the University of Chicago, and Morgan Stanley and Goldman Sachs started a bidding war over him. Ultimately, his starting salary was $250,000, while everyone else started at $90,000. Not bad, huh? Since then, I have seen many engineering schools -- most in industrial engineering, but some in electrical engineering -- begin to train their students in financial engineering. They don't call it that, but the research the students do is essentially in that area. Since the economic collapse, I don't know how the shakeup has affected financial engineering. My hunch is that it's more wanted than ever because now banks need financial engineers to figure out ways around the new regulations. Names for financial engineering departments at banks include derivatives and options desks and risk arbitrage departments.
​

• Third, how many years? Bachelor's, Master's, or PhD?

You'll make the most money and get the most responsibility with a PhD. You will move quickly up the ranks. In the early days, you could get a way with a Bachelor's. I have a friend who became partner at Goldman in 5 years (record-time) with only a Bachelor's. I repeat: partner at 27! Today, with a Bachelor's, you'll be an analyst (a.k.a. slave to an associate or VP, who have a Master's or a PhD). It's horrible to be an analyst. I loved the work experience, but hated the status. So I would recommend you get some graduate work first.
​

• Finally, what would I recommend?

If you want to be a financial engineer, I think the best approach is to study mathematics/statistics in your undergraduate degree. Then, don't miss a beat and get an MBA. Then, do a Ph.D. in Finance or some engineering field that will allow you to study financial engineering. Along the way, do internships with investment banks.​

 

[gel]

As long as you study a highly numerical subject at university such as maths/physics/etc, then this line of work should be open to you after completing an undergraduate degree. A PhD can also help. It's not necessary though, while a lot of people working in financial engineering have a PhD, many others don't. It is very competitive though, as the banks and other financial companies look for and can afford to pay for the top performers.
In any case, if you're not at university yet, then you don't really need to decide now. As long as you do sufficiently rigorous and numerical subjects at university then it's something you can decide later.
Also, I'm surprised that you have only just stumbled across the subject now, given that it is something in the news a lot since last year. The term "financial engineer" isn't used much. Quant is more common, but it also has other meanings (such as "quant fund"). More generally, banks and financial companies look for highly numerate people to do whatever is needed, and such terms are rather loose designations.

 

[gel]

Today, with a Bachelor's, you'll be an analyst (a.k.a. slave to an associate or VP, who have a Master's or a PhD). It's horrible to be an analyst. I loved the work experience, but hated the status. So I would recommend you get some graduate work first.

Yeah, joining straight after a first degree will mean starting at a slightly lower level (such as an analyst). Don't think that really means being a slave to anyone. It all depends on what you make of your role and what team you join.

 

[comp_math]

For discussions on financial engineering, go to

www.quantnet.org

 

[creepypasta13]

No. A financial engineer is NOT an actuary.

how are they different? which makes more money? which uses more math, and less business/finance on the job?

 

[twofish-quant]

One thing about banks is that people seem to care about job titles than in other places. The thing about people that work in financial engineering/quantitative finance is that there are about a half-dozen different *types* of jobs involved in the field.

To get a job in this line of work requires at least a masters degree is CS or math or statistics or finance, and a lot of people have physics/math/CS/engineering Ph.D.'s. MBA's generally don't do this type of work in banks. Banks need lots of MBA's but they usually end up doing something else, and most people that do this type of work are more likely to have CS degrees than finance one.

Also people have tried to create a degree specifically geared toward MFE's but I don't think this has worked out very well.

 

[twofish-quant]

As long as you study a highly numerical subject at university such as maths/physics/etc, then this line of work should be open to you after completing an undergraduate degree.

It's *possible* to get a job at an investment bank with just an undergraduate degree, but highly unlikely. You are more likely to get a job at a consulting firm like McKinsey or Accenture.

Also, one thing to realize is that things change a lot over a few years. By the OP enters the workforce, the world will be very different. This is why I think it's a bad idea to aim for a specific career, but instead it's better to get some general skills that will be useful in different industries. Also take the humanities seriously. Understanding and appreciating history will give you a better idea of how things will go.

A PhD can also help. It's not necessary though, while a lot of people working in financial engineering have a PhD, many others don't. It is very competitive though, as the banks and other financial companies look for and can afford to pay for the top performers.

Depending on the field, it's not really that competitive. If you have a physics Ph.D. or CS masters with work experience right now, you'll probably won't have any problem getting a job at a bank. It may not be one of the glamour jobs, but you'll get something.

Now if it starts being competitive, then maybe you should look elsewhere for jobs. One problem with high academic achievers is that because they are very competitive, when jobs are scarce, there is a desire to compete heavily for a few jobs rather than to step back and look for somewhere else where the jobs do exist. You see this in banking, where everyone seems to want a glamour job in the front office, whereas there are *LOTS* of jobs where you are in some cubicle in the middle of nowhere, babysitting a computer program or data feed.

In any case, if you're not at university yet, then you don't really need to decide now. As long as you do sufficiently rigorous and numerical subjects at university then it's something you can decide later.

Also take the liberal arts seriously. One thing about finance is that there is so much money flowing that you can get yourself into big trouble if you don't have your head screwed on straight. You need to get a good basic understanding of philosophy, communications, and history. To give you an example of why philosophy is important. You can easily be in situations in which someone will promise you vast sums of money to do something. Should you do it? The other thing is that a lot of finance basically consists of convincing someone to do something. Just to be very basic, at an interview, you are trying to convince someone to hire you. This means that writing and communications skills are very important.