Engineering + Finance = Financial Engineering

The above equation is true, however, what the equation does'nt impress upon is the fact that you are combining two age old disciplines (okay, maybe modern finance is not that old) to produce innovation in a whole new field.

Someone at the panel said the other day that engineering makes a detailed analysis of a physical system and then adds on it a huge factor of safety. This is not so in finance, where values to the last digit could (and are) very significant.

In a way, this exact-ness is what appeals to me about quant finance. There is no room for hand waving - a security is priced according to a model and its underlying assumptions. Period. No BS. On the other hand, engineering seems to be moving into the hand-waving domain (with safety factors and other such CYA strategies). Finance is moving to from the other end of the spectrum (from obscure valuation models, M&A) to the "exact" side (pricing, securitization).

Ironic? Well, maybe so.. but it is refreshing.

So How does one become a Quant

Short answer (quote from a panelist): "DUMB LUCK"!!

It was a neat event put together by IAFE and Haas. The panel was moderated by Domingo Tavella (who also teaches in the MFE program). The other speakers were recent graduates as well as seasoned experts. While I can't go into the discussion at length, I quickly want to jot down some interesting tidbits.

• Get ready for 14 hour work days (70 hour weeks), it could be working at work, or home, or on the subway, But it could be as much as 14 hours of brain work.
• Ph.D.'s have a huge advantage for pure quant and research positions. As one of the panelists put it - A science or engineering Ph.D. coupled with a MFE is probably equal or more useful to employers than a finance Ph.D. Four out of six panelists had Ph.D.s
• Whats up with all those questions on compensation.. and corporate culture. Looks like people have only 2 perceptions about fianance professionals - cut-throats and highly paid. However, there was some discussion on some quant groups being treated as cost centers at desks.
• Financial engineering is slowing cutting across industry verticals - energy, insurance, etc.

How I became a Quant

How I Became a Quant:

Hosted by the
International Association of Financial Engineers
and the Haas Master’s in Financial Engineering Program

Wednesday, September 28, 2005

Speakers Include:
Alessia Falsarone, Citigroup Investment Research
Stephen Kealhofer, Diversified Credit Investments
Robert Mark, Black Diamond Risk
Matthew O’Hara, Barclays Global Investors

Moderated by:
Domingo Tavella, Advisor, Hypovereinsbank Global Derivatives

Citadel

Interesting article on Citadel.Chicago Tribune | Citadel turns chaos into cash

Financial Engineering Grows in India

Financial Engineering Grows in India

Good article.. FE grows in emerging economies.

Future of Financial engineering ?

I was recently talking with the Executive Director of MFE Program - John O'Brien about what he thought was the future trends in financial engineering. The general sense is that the same innovations that took place for the past 20 years in the institutional markets will soon be applied to the retail and personal investing market, i.e. for individual investors. Similarly, Corporate finance will employ more and more FE to hedge company wide risks. Of course, newer markets and products are always opening up - energy, weather, hybrid securities, ABS, MBS, etc; which would require advanced FE to price and sell.

Readers, any more thoughts on this...? Leave comments.

Berkeley Blogs

Interesting link .. I should ask my blog to be linked to this site!!!Berkeley Blogs

Campus and more

Went to campus over the long weekend. It was a beautiful day and the campus seemed extremely packed for a weekend. What gives? Oops, I had completely forgotten - the first opening Football game of the season!!! Cal vs Sac state..

The campus was alive - fans, band, beer, and BBQs. Luckily we found parking pretty close to campus. I showed Haas and other campus buildings to the wife, who was duly impressed (I think :))

Turns out Cal beat poor Sac state 41-3. Boy, can't wait for Football games next fall when I am on campus.