Introduction to Financial Engineering

Financial engineering involves the application of technical methods, especially in mathematical and computational finance in the practice of financial investment and management. It plays a critical role in the customer‐driven derivatives business that includes quantitative modeling and programming, trading, and risk managing derivative products in compliance with applicable legal regulations. Many of the theoretical approaches in financial engineering depend on the time/volume inflationary characteristics of the asset values or prices of commodities. As a classical example, consider the value‐time and trading‐volumes characteristics of the Dow Jones Industrial Average (DJIA). In financial trading and investment environment today in which computerization and specialized mathematical algorithms can and do play significant roles, some investment agencies, as well as individual investors, have found it almost irresistible not to wander into and along these paths. Two such well‐known paths are day trading and algorithmic trading.