Financial Engineering

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Unit I: Introduction to Financial Engineering- Scope- Tools- Financial Engineering Vs.
Financial Analysis- Factors contributing to the growth of financial engineering.- Innovative
Products of the Last twenty years- present changing scenario of securities industry.
Unit I: Introduction to Financial Engineering
Unit I see the prescribed Text book. Unit II is OK
What is Finance?
• Finance is about the bottom line of business activities
• Every business is a process of acquiring and disposing assets
– Real asset
– tangible and intangible
– Financial assets
• Objectives of business
– Valuation of assets
– Management of assets
• Valuation is the central issue of finance
Money vs. Finance
What is Financial Engineering?
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Debt securities are generally issued for a fixed term and redeemable by the issuer at the end of that term.
An equity security is a share in the capital stock of a company
(typically common stock, although preferred equity is also a form of capital stock).
The holder of an equity is a shareholder, owning a share, or fractional part of the issuer. Unlike debt securities, which typically require regular payments (interest) to the holder, equity securities are not entitled to any payment.
Equity also enjoys the right to profits and capital gain.
Weighted average cost of capital
The Weighted Average Cost of Capital (WACC) is used in finance to measure a firm's cost of capital.
Financial Engineering Vs. Financial Analysis
A Financial Engineer is a person engaged in the practice of financial
And Engineering is the process of formulating and implementing a new instrument, a new process, or a creative solution to a problem.
Financial Engineering refers to the bundling and unbundling of securities. This is done in order to maximize profits using different combinations of equity, futures, options, fixed income.
Financial engineering is a cross-disciplinary field which relies on computational intelligence, mathematical finance, numerical methods and computer immolations to make trading, hedging and investment decisions, as well as facilitating the risk management of those decisions
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