Financial products go hand in hand with technological developments. Not surprisingly, financial institutions are also required to follow developments and master financial engineering.
However, to be able to build financial products is not arbitrary. Accurate calculations are needed so as not to harm institutions and users. Actually, what exactly is Financial engineering? Why is this also important for financial institutions?
Understanding Financial Engineering
Launching Investopedia, Financial engineering is the use of mathematical techniques to solve financial problems. In carrying out financial engineering, tools and knowledge from various fields are needed. These fields include computer science, statistics, economics, and applied mathematics.
Multidisciplinary knowledge is used to address today's financial problems and create innovative financial products. Many refer to financial engineering as a quantitative analysis used by various financial institutions such as banks, insurance companies, and securities institutions.
This calculation is not limited to financial products issued by institutions, but also to financing schemes, investments that are considered complicated. The people who are responsible for it are referred to as financial engineers.
Use of Financial engineering
As previously stated, rapid change requires new, innovative and profitable financial products.
This is because investors need to share risk in financial products and companies also need to attract new consumers through financial products. Most financial products arise from the use of financial engineering.
With this application, found new investment models, new investment analysis methodologies, new credit supply models and new financial models that respond to various financial problems.
Financial engineers test quantitative risk models and predict whether the financial products to be used can provide benefits and last a long time.
How to apply Financial engineering?
From the various explanations above, it is clear that the next question is how can this calculation or analysis become a new financial product that is accepted by the public?
Summarizing from Wallstreetmojo, there are several steps that need to be taken:
1. Identify the problem
As in planning a new product launch, problems need to be identified.
At this early stage, the financial engineer analyzes the problems that occur and formulates hypotheses to solve these problems. So see if problem solving is something the market needs.
2. MVP creation
Based on previous research, the minimum feasible MVP or product is made based on the hypotheses of needs and patterns found.
3. Product development workshop
The next step, MVP is distributed on a limited basis to potential users to get feedback. Based on this feedback, more complex products will be created which must meet the needs of the people.
4. Guarantee product quality
The complexity of the product being manufactured requires further testing to ensure that the product actually functions correctly.
5. Finished products
Products are made with various transformations from MVP to final product.
6. Determining the Price
The next step is to calculate the right price for users to use the product, what the scheme is and so on.
7. Product launch
The final step is product launch. The implementation is in the form of marketing strategies such as those used to market products, the breadth of the launch and the types of promotions that will be carried out.
Types of Financial engineering
Apparently, there are several types of financial engineering. Also from Investopedia, here are the types.
1. Derivatives trading
Most financial engineering uses calculation or opportunity analysis.
Using this, they can find new strategies to solve financial problems so that they can benefit the company.
It is called derivatives trading or derivatives trading because it reworks an existing model to create new, more profitable products.
Another type of financial engineering is making speculations. One example is currency exchange. This is done by speculating the value of another currency against the currency you wish to trade.
Of course, nowadays more and more financial products are based on this. One of the most famous in the United States is the existence of CDS, or Credit Default Swaps.
Financial Engineering Career
After knowing this, then you need to know what the career opportunities as a financial engineer are, especially in Indonesia.
In general, a financial engineer should have a master's degree and understand computer science, statistics, and finance. In Indonesia itself, this profession is even less popular, because financial products in Indonesia tend to follow existing financial products.
But don't be sad, there are several professions that have almost the same job. You can choose to become a financial analyst, fraud analyst, risk analyst.
This is some information you need to know about Financial engineering. Knowing this, you have the option of a career in finance. If you want a career in Indonesia, you can check out the various financial vacancies available at Glints.