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Financial engineering : the evolution of a profession

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The past three decades have been a remarkable period for innovation. This
is no less true, and probably truer, for financial innovation. No prior period
of equal length has ever witnessed anything that even comes close.
This innovation has included amazing advances in financial theory, computational
capability, new product design, new trading processes, new markets, and new
applications. In fact, each of these innovations has supported and reinforced the
others. In the early 1990s, practitioners and academics alike began to recognize
that this spate of innovation was not just a passing fad. Rather, something fundamental
had changed. Indeed, something had, and the new profession known as
financial engineering emerged. These think-out-of-the box, often technologically
and/or quantitatively sophisticated, individuals are the drivers behind the new
finance.

All periods of innovation are traumatic. The old, only grudgingly, makes way
for the new. Adapting to a new environment takes effort, and not all will survive.
For example, many floor traders on stock, futures, and options exchanges fought
tooth and nail to prevent the introduction of electronic trading platforms. But,
in the end, the new platforms won out. Why? Because they are better—they are
faster, less error prone, and they lead to tighter bid-ask spreads, which means lower
transaction costs for investors.

Innovation is not without its problems. Good ideas often have unintended
consequences. Cell phones, for example, have made it possible for anyone to reach
almost anyone else at any time in real time. How can that be bad? But cell phones
and their associated capabilities, such as text messaging, have increased road hazards,
become an annoyance to anyone dining out, attending a theater, or just trying
to read in peace on the commute home. Similarly, financial innovation has often
had unintended consequences. The financial crisis that began in 2007 and, some
would say, continues as of this writing, has been blamed in part on the securitization
of subprime mortgages and other financial innovations. Securitization
dramatically changed the way mortgage lending worked. It brought huge amounts
of capital to the mortgage market, making it faster and easier for would-be homebuyers
to secure the necessary financing for their purchase. How could making
it easier to achieve the American Dream possibly be bad? But securitization has
had unintended consequences. Many mortgage originators changed their focus
from managing their credit risk to originating as much volume as possible with
little regard to credit quality. Securitization had made credit risk “someone else’s
problem.”

The years ahead will be a period of great change for financial engineering.
Investors, borrowers, regulators, supervisors, boards of directors, legislators, and
individuals alike will need to determine what to keep—and what to throw out.
This book is designed to help readers do precisely that. Whether experienced or
new to financial engineering, this book will help you focus on not only established
activities but also the areas of greatest opportunity and need.

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Ketersediaan

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Informasi Detail

Judul Seri

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No. Panggil

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Penerbit

New Jersey : JohnWiley & Sons, Inc.., 2011

Deskripsi Fisik

HG176.7.F558 - 332–dc22

Bahasa

English

ISBN/ISSN

978-0-470-88983-1

Klasifikasi

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Tipe Isi

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Tipe Media

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Tipe Pembawa

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Edisi

Robert W. Kolb series ; 2

Subjek

KEUANGAN

Info Detail Spesifik

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Pernyataan Tanggungjawab

agus

Versi lain/terkait

Lampiran Berkas

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