Risk Management Basics
- Derivatives Basics
- Put-Call Parity
- Forwards vs Futures
- Forward Rate Formula
- Cash Settlement vs Physical Settlement
- Backwardation vs Contango
- Residual Risk
- Best Futures Books
- Futures vs Options
- What are Options in Finance?
- Options Trading Strategies
- Call Options vs Put Options
- Options vs Warrants
- Writing Call Options
- Writing Put Options
- Gamma of an Option
- Options Trading Books
- International Option Exchanges
- Interest Rate Derivatives
- Interest Rate Swap
- Random vs Systematic ErrorÂ
- Equity Strategies
- Swaps in Finance
- Embedded Derivatives
- Commodity Derivatives
- Commodity Risk Management
- Managed Futures Strategy
- Top 7 Best Books on Derivatives
- Structured Finance Jobs
- Commodities Trading Books
- Best Commodities Books
- Fixed Income
- Equity Research vs Credit Research - Know the difference!
- Credit Analysis | What Credit Analyst Look for? 5 C's | Ratios
- Yield Curve Slope, Theory, Charts, Analysis (Complete Guide)
- Bond Pricing
- Coupon Bond
- Coupon Bond Formula
- Zero Coupon Bond
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- Coupon Rate Formula
- Carrying Value of Bond
- Sinking Fund Formula
- Coupon Rate of a Bond
- Treasury Bills vs Bonds
- Coupon vs Yield
- Coupon Rate vs Interest Rate
- Credit Rating Process | A Complete Beginner's Guide
- Asset Backed Securities (RMBS, CMBS, CDOs)
- Loss Given Default - LGD | Examples, Formula, Calculation
- Top 7 Best Fixed Income Books
- ABS and MBS Index | Complete Beginner's Guide
- Top 10 Best Treasury Management Book
- Top 10 Best Credit Research Books
- Convexity of a Bond | Formula | Duration | Calculation
- Payment in Kind Bond | PIK Definition | Interest | Example
- Subordination Debt | Meaning | Example | Types | Risks
- Top 10 Best Books - Bonds Market, Bond Trading, Bond Investing
- Bonds vs Debentures
- Secured vs Unsecured Loan
- Bills of Exchange vs Promissory Note
- Bills of Exchange | Meaning | Examples | Top Features
- Promissory Notes
- Secured Loans
- Unsecured Loans
- Subordinated Debt
- Fallen Angel
- Bond Equivalent Yield Formula
- Junior Tranche
- Credit Analyst Interview Questions and Answers
- Debt Covenants | Bond Covenant Examples | Positive & Negative
- Credit Analyst Career
- Negative Covenants (Restrictive)
- Sinking Fund
- Bond Sinking Fund
- Negotiable Instruments
- Credit Spread
- Bond Pricing Formula
- Risk Management Careers
- Complete Beginner's Guide to CRM Exam
- How to Become a Quantitative Financial Analyst
- Risk Management Certifications and Salary
- Financial Engineering Career Guide: Program, Jobs, Salary
- Quantitative Analyst Salary | Skills | Trends | Top Employers
- Certificate in Quantitative Finance (CQF) Exam Guide
- Relative Risk Reduction Formula
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 thorough knowledge in financial markets and also about the volatility of the markets. On the basis of the knowledge in financial market and financial theories, financial engineers plunge in creating simulations and predicting possible market behaviors. The predictions they make is quite close to the actual ones most of the times, 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 helps financial engineers create simulated financial models so they can most accurately forecast the market behavior. They also need to know statistics and economic theory to understand the various forces in the market which control the 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 are they and which universities teach these courses.
There are numerous courses you can do for financial engineering. We will just pick 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 basic three skills you need most if you want to thrive in financial engineer.
Mathematical Skills for Financial Engineering:
Training doesn’t mean knowing few key concepts and thinking that you’re good to go. It should be a lifetime affinity. The more you would push forward, 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 in financial theories and financial markets. You should master the following-
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 Macros
- 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 team mates, clients and write reports whenever it would be required.
Financial Engineering Salary
Not everyone can become financial engineer. It needs guts, effort and a 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’ salary.
Two things mattered most in coming up with this median salary figure (i.e. US $89,000). First thing was 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 financial engineering 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 financial engineering profession according to payscale.com is financial modeling.
Now you got an idea about how much compensation you can expect from 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 Capital 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 few other professionals would be able to match your expertise and income level.
To have a better understanding of the median salary of financial engineer, 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 bit higher than the recommendation of payscale.com. To be precise, the median salary as per indeed.com is 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 on 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 since 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 all-time high in January, 2014 and from then onwards there is no increase or decrease in the compensation curve. As this is 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 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 will 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 US $7,839. They were getting paid monthly and they were only paid for 3 months. But instead of quoting the monthly salary, if we take the annual salary based on the monthly salary they got, it would be 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 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 internship will add couple or triple reputed brand names in your resume which is always good if you’re looking for a lucrative opportunities.
- 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 won’t be 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, may be 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), information will act as a catalyst to your success.
The more you know, 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.