Posted October 19th, 2010
The recent financial crisis combined with a confused press regarding who is at fault has, in recent meetings of Financial Engineering/Mathematics programs across the US, raised the urgency to better define how we are educating our students for the Masters degree in Financial Engineering. The need to brand financial engineering is being discussed by the IAFE (International Association of Financial Engineers). This has presented an opportunity to effectively collaborate when challenged externally by a public duped in believing that financial engineers were a major contributor that led to the crisis. In these discussions, a challenge on defining the nature of the financial engineering profession has been revealed. In particular, are financial engineers Quants or is Quant only a means (albeit important) but increasingly of lesser importance.
The branding of financial engineering as “engineering rather than a Quant profession” is thus essential if it is to survive and prosper. In our program at NYU-Polytechnic Institute, financial engineering is at the kernel of an interdisciplinary profession. It seeks to bridge theory and practice; integrate in a coherent educational framework the theories and the environment of finance and economics; points out that finance is fueled and fed by information (and therefore, any beginning financial engineer must first be confronted with data and how to reduce its complexity into statistical and meaningful pronouncements); that financial engineering technology is an essential part of its entrepreneurial business and of course Quant. Quant in this framework is a means to reduce the complexity of financial constructs and understand their complexity. It is not however its dominant factor. For a Quant, finance will be “virtual” embedded in rational expectations, for financial engineers, virtuality is a means to manipulate “reality”. A Quant will seek comfort in numbers and constructs that have removed financial risks ex-ante; for a financial engineer, however risk may be mitigated but not removed.