Financial Engineering Career Guide
Financial Engineering is a field that needs someone who is a jack of all trades. The core discipline would be financed. However, to solve the issues in finance, this guy needs to peep into other disciplines as well like, applied mathematics, computer science, statistics, and economic theory. If this sounds interesting and you’re one of those who can think both in divergent and convergent ways, you should go for this newly evolved field.
Yes, we know that two things would concern you most before you ever take one step forward. First would be – what are the career opportunities in financial engineering! And second – how much I can expect to get paid!
In this article, we will address both of these concerns. All you need to do is to relax and read through. This is everything you need to know about career prospects and compensation details of financial engineering. Below is the structure of this article –
- What financial engineers do?
- Financial Engineering- Career Roles
- What degrees financial engineers need to acquire to get in the field?
- Skills needed to thrive in financial engineering
- Financial Engineering Salary
- How would you be able to receive more salary as financial engineers?
Let’s jump in. Before we go into the career prospects, let’s have a look at the financial engineering profession in brief.
What Financial Engineers Do?
Financial engineers need to have a thorough knowledge of financial markets and also about the volatility of the markets. On the basis of knowledge in the financial marketFinancial MarketThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces. and financial theories, financial engineers plunge into creating simulations and predicting possible market behaviors. The predictions they make are quite close to the actual ones most of the time, but sometimes they’re not accurate (as there are so many variables and dynamic market forces).
Financial engineers not only need knowledge in financial markets and theories; rather, they also need significant competence in computer programming and applied mathematics. These skills help financial engineers create simulated financial models so they can most accurately forecast market behavior. They also need to know statistics and economic theory to understand the various forces in the market which control market behavior.
Financial Engineering- Career Roles
Most of the financial engineers work in risk management and financial analysis in various fields. Let’s have a look at the possible fields you can work in if you become a financial engineer –
- Derivatives Pricing
- Risk Management
- Structured Products
- Valuation of Options
- Financial Regulation
- Corporate Finance
- Portfolio Management
What Degrees Financial Engineers Need to Acquire to Get in the Field?
Financial engineering is a field that is being taught in many universities. Let’s have a look at what they are and which universities teach these courses.
There are numerous courses you can do for financial engineering. We will just pick the top 10 courses in the world.
According to quantnet.com, these are the top 10 financial engineering courses in the world –
|Rank||University/Program||Tuition Fees (in US $)|
|1||Carnegie Mellon University – Computational Finance||80,400|
|2||Columbia University – Financial Engineering||61,560|
|3||University of California, Berkeley – Financial Engineering||66,082|
|4||Baruch College, City University of New York – Financial Engineering||Non-resident – 35,040
Resident – 24,315
|5||New York University – Mathematics in Finance||58,000|
|6||Princeton University – Master in Finance||90,700|
|7||Columbia University – Mathematics of Finance||60,332|
|8||Cornell University – MEng, FE Concentration||74,000|
|9||Massachusetts Institute of Technology – Master of Finance||12 months – 75,850
18 months – 100,350
|10||University of Chicago – Financial Mathematics||Without C++ – 66,166
With C++ – 81,216
Skills Needed to Thrive in Financial Engineering
There are basically three skills you need most if you want to thrive in a financial engineer.
Mathematical Skills for Financial Engineering:
Training doesn’t mean knowing a few key concepts and thinking that you’re good to go. It should be a lifetime affinity. The more you would push forward, the better you would be in mathematics. And to perform great as a financial engineer, you really need to have a fascination toward mathematics. You should master the following-
- Linear algebra and differential equations
- Numerical linear algebra (NLA)
- Game Theory
- Calculus (differential, integral & stochastic)
- Probability & Statistics
Financial skills for Financial Engineering
This would be your core subject, so it’s natural that you need to develop some muscles in financial theories and applied finance. Once the basic foundation of finance is clear, you need to go deep as much as you can. Doing a course, we have mentioned above will propel you to be good at financial theories and financial markets. You should master the following-
- Financial Modeling
- Portfolio Theory
- Financial Statement Analysis
- Knowledge of credit risk-products
- Equity & Interest rate derivativesInterest Rate DerivativesInterest rate derivatives are the financial instruments that track the fluctuations of the underlying interest rates. These underlying interest-bearing assets can be a single interest rate or a bunch of different interest rates.
- Fixed IncomeFixed IncomeFixed Income refers to those investments that pay fixed interests and dividends to the investors until maturity. Government and corporate bonds are examples of fixed income investments.
- Monte Carlo Techniques
Computer Programming Skills
Computer programming is a daily requirement in the life of a financial engineer. If not, how would you create simulated financial models? So better get some grip over computer programming. You should master these programming languages –
- C++ (it’s utilized for high-frequency trading applications)
- Data Mining
- Java, .NET
- VBA MacrosVBA MacrosVBA Macros are the lines of code that instruct the excel to do specific tasks, i.e., once the code is written in Visual Basic Editor (VBE), the user can quickly execute the same task at any time in the workbook. It thus eliminates the repetitive, monotonous tasks and automates the process.
- MatLab, SAS
- Object-oriented programming
- Big data modeling
Other than above, you also need to have foundation knowledge in economic theory, logic, analytics, and statistics. Another crucial skill is communication (both verbal and written) because you need to communicate regularly with your teammates, clients, and write reports whenever it would be required.
Financial Engineering Salary
Not everyone can become a financial engineer. It needs guts, effort, and determination to succeed. But why would you put so much effort if you don’t have any idea about the end results? Yes, compensation is not the only thing, but without compensation, the other things that you are looking for won’t give you any nudge.
So let’s have some idea about what financial engineers actually make.
Let’s have a look at what payscale.com mentions about financial engineers’ salaries.
Two things mattered most in coming up with this median salary figure (i.e., US $89,000). The first thing was an experience in the field, and the second is geography. 83% of respondents are men, and the remaining 17% are women in the field. Everybody in the financial engineeringFinancial EngineeringFinancial engineering is field which uses mathematical techniques, financial theories, engineering tools and advanced programming techniques to solve critical and complex financial problems. field mentioned greater job satisfaction.
Almost all the respondents mentioned that they get medical coverage from their employers, and they also receive dental insurance coverage.
The most important skill in the financial engineering profession, according to payscale.com, is financial modeling.
Now you got an idea about how much compensation you can expect from the financial engineering profession. But you may feel the need to compare your compensation with related professionals. So, here’s what payscale.com came up with –
If you pay heed to the median salary of each related profession, you would see that only Actuary, Associate – Investment Banking, Associate – Venture CapitalVenture CapitalVenture capital (VC) is long-term finance extended to startups with high-growth potential to help them succeed exponentially. The investors are venture capitalists who bear the excessive financial risk and provide guidance to startups to attain their objectives., and Associate Director of Financial Services have similar or more median salary than the median salary of a financial engineer. This is good news because as you gain more experience, you will receive better compensation, and only a few other professionals would be able to match your expertise and income level.
To have a better understanding of the median salary of financial engineers, we also looked at the reports of indeed.com. Let’s have a look at the analysis indeed.com came up with in regards to financial engineering salary.
According to indeed.com, the median salary of financial engineers is a bit higher than the recommendation of payscale.com. To be precise, the median salary as per indeed.com is the US $8,000 higher per annum. Moreover, the report of indeed.com is more updated as it is mentioning the median salary of financial engineers as of 1st August 2016.
Indeed.com has also found out the recent trends in the compensation of financial engineers. Let’s have a look at the trend, and then we will try to analyze the trend and whether it’s good news for would-be financial engineers or not.
This trend talks about three years of constant upward and downward pull in the compensation of the financial engineers. If you look closely, you would see that there is an upward pull in the compensation from July 2012 to January 2013. From January 2013, we can see a downward pull in the compensation. That downward pull remained constant in February 2013 and March 2013. From April 2013, there is another upward pull. But that didn’t last for long. The upward pull stayed till May 2013 and then gradually decreased during June 2013. And in July 2013, there is a drastic downward pull, and it stayed constant till September 2013. From September 2013, the compensation curve started to increase and reached an all-time high in January 2014, and from then onwards, there is no increase or decrease in the compensation curve. As this is a two years old report, it would be difficult to conclude anything from this. But there is one thing that can cause a bit of concern for would-be financial engineers, and that is saturation in the compensation. It can be clearly seen that there is saturation between the period of January 2014 and May 2014.
So you need to pay special heed to your skills because if in 2016-17, the saturation continues, you need to have expertise and skills to be able to stand out in the crowd.
How would you be Able to Receive more Salary as Financial Engineers?
No. There is no short cut to success. But there can be ways successful people have followed, which you can emulate and become successful. In financial engineering careers also, there is a way to get to greatness. Here’s how.
According to Business Insider, if you want to make your mark in financial engineering, here’s what you should do –
- Find out internship opportunities in reputed firms and give everything in learning the trade during your stay of three months in the company.
- Quote your annual salary (expected) when you go for an interview more than the annual salary you have got during your internship opportunity.
The first point is self-explanatory. But the second needs some explanation.
According to Business Insider, in 2011, more than 65 graduates went to do internships in reputed firms. Their monthly salary was the US $7,839. They were getting paid monthly, and they were only paid for three months. But instead of quoting the monthly salary, if we take the annual salary based on the monthly salary they got, it would be the US $94,068 per annum.
While analyzing the survey of indeed.com and payscale.com, we found that the median salaries of financial engineers per annum are US $97,000 and the US $89,000, respectively. We need to consider that the median salaries reported by indeed.com and payscale.com are the result of both experience and skills.
So, when you will come out of the financial engineering/master of finance program and want to get ahead in your financial engineering career, it’s better to look for internship opportunities in most reputed organizations. If you can crack the code, you will be able to quote the expected annual salary on the basis of the stipend you would get from your internship opportunity. And according to the Business Insider, it’s a lot more than one inexperienced graduate can expect to get.
Moreover, you can go multiple internship opportunities while paying heed to learning the needed skills and getting your expected stipend.
Multiple internship opportunities have four big advantages –
- First, multiple internships will add a couple or triple reputed brand names in your resume, which is always good if you’re looking for a lucrative opportunity.
- You may get absorbed in the reputed firm/s at the end of your tenure if you prove to be a great asset to the company.
- Even if you aren’t able to get absorbed into the reputed firm you would do your internship in, you will always be able to quote the annual salary for your future employment opportunities.
- Lastly, maybe the most important of all is you would learn a ton about the trade-in these reputed firms.
So look out for internship opportunities and use this great strategy to enhance your compensation.
Financial engineering is a dynamic field where you always need to be updated. And as you need to think both ways (from inside-outside and outside-inside), the information will act as a catalyst to your success.
The more you know, the better would be your chances of application, and thus, you would be able to fetch better compensation from the companies you would be employed in. Just don’t leave out any opportunity for constant learning, especially in finance, mathematics, and computer programming, and you’re good to go.