John Finnerty Classification
1) In 1998, American finance professor John Finnerty first gave a formal definition of financial engineering. Starting from his definition of financial engineering, the research scope of financial engineering is divided into three aspects: 1) The development of new financial products and financial instruments, including financial products for the public (such as new bank accounts, new mutual funds) etc.) and enterprise-oriented financial instruments (such as futures, options, new convertible bonds, new preferred stocks, etc.).
2) The development of new financial means is mainly to reduce transaction costs, such as electronic securities transactions.
3) Solve financial problems creatively. For example, the innovation of cash management strategies, the creation of corporate financing structures, etc.
John Marshall Classification
From a practical perspective, Dr. John F Marshall (1992), now executive chairman of the American Society of Financial Engineers and St. John's University School of Business, believes that financial The research scope of the project should include the following four aspects:
1) Corporate financial management. When traditional financial instruments are unable to meet a company's unique financing needs (including mergers and acquisitions), financial engineers must design appropriate financing solutions.
2) Trading of financial instruments such as securities and derivatives. The main purpose is to develop trading strategies with arbitrage or quasi-arbitrage properties. These arbitrage strategies may involve arbitrage in different locations, times, financial instruments, risks, laws, regulations, tax rates, etc.
3) Investment and currency management. A system that develops new investment instruments and "high-yield" mutual funds, money market mutual funds, and reverse repurchase agreements to convert high-risk investment instruments into low-risk investment instruments.
4) Risk management. Combining various risk management methods to conduct financial risk analysis and management. That is, after identifying and measuring enterprise risks, based on the enterprise's management objectives, existing financial instruments are used to construct a plan to reduce or avoid risks.
Song Fengming Classification
Frederick (Fengm ing) Song, professor at the School of Economics and Management of Tsinghua University and leader of the "Financial Engineering" project of the National Natural Science Foundation of China's "Ninth Five-Year Plan" major project, 1997) The doctor compared financial engineering to the part design, structural design, complete machine design and research on the machine operating environment in mechanical engineering. He believed that the research scope of financial engineering can be summarized into the following four levels:
1 ) Design, development and implementation of financial instruments and means.
2) Risk management technology, that is, the use of various financial tools and means to achieve expected return/risk targets.
3) Creation of the overall financial structure, such as designing corporate mergers and acquisitions plans, asset securitization, setting up money market funds, establishing repo/reverse repo markets, etc.
4) Research on financial markets, such as research on the completeness, efficiency and general equilibrium of financial markets, as well as research on the status and role of financial markets in the entire market system, etc. wait.
These four levels summarize the research scope of financial engineering from micro to macro.
It is worth mentioning that the practical application of financial engineering has even exceeded the field of finance and finance. Some industrial enterprises have applied financial engineering technical methods to corporate management, marketing, commodity pricing, patent value estimation, employee welfare policy formulation, business contract negotiation, etc., and have achieved unexpected success. And often only a simple financial engineering technique can solve an otherwise quite complex problem. In fact, financial engineering has its place as long as it involves the decision-making and allocation transfer of returns and risks. In other words, the theory and practice of financial work can be expanded to a wider range of fields.
In addition, in a sense, financial engineers play three roles: transaction plan makers (market participants), new concept creators (creators), and economic and legal sidelines.