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April 30, 2024
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what is financial engineering, didn't have it at my school, how does it differ from straight finance
Using quantative methods to develop and trade in derivative products in rder to hedge risk.
You'll get a better explanation on wikipedia
i guess you'd use some interest/currency swaps where appropriate, if that counts
yea i think you're right.
Financial eng is also looking at restructuring the comany's balance sheet, subsidiaries and debt structure.
often by reengineering and gearing, you can achieve better ratios, also better return on equity for the core business. selling it into parts that sum up more than the price you paid for it is also a commonly used technic
Maybe the PE shops just want people that took really hard finance classes like Stochastic calculus, so they know balance sheets are easy for you. I have not heard of this recruiting practice though.
Stochastic calculus has nothing to do with balance sheets.
just means structuring a LBO and subsequent recaps (tinkering with capital structure put in place) in order to profit instead of operationally turning around the company for profit. The big buyout funds (KKR, Bstone, etc) are known for this (somewhat hands off approach with company after they purchase). It is not financial engineering from school, just a term used in the PE industry, not really that complicated
Financial engineering in the conventional sense of the term is used mostly by trading desks and quant funds. FE in PE is totally different work, like capital structuring, recaps, LBO, etc. So some overlap of skills.
From personal experience, PE firms are gong towrds Real Options Analysis as this gives them a better view of future events.
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