Financial Engineering Career Guide: Program, Jobs, Salary

Financial Engineering is a field that needs someone who is a jack of all trades. The core discipline would be financed. However, to solve the issues in finance, this guy needs to look into other disciplines, like applied mathematics, computer science, statistics, and economic theory. If this sounds interesting and you’re one who can think in divergent and convergent ways, you should go for this newly evolved field.

Yes, we know that two things would concern you most before you take a step forward. First would be – what are the career opportunities in financial engineering! And second – how much I can expect to get paid!

In this article, we will address both of these concerns. All you need to do is to relax and read through. This is everything you need to know about career prospects and compensation details of financial engineering. Below is the structure of this article –

Let’s jump in. Before we go into the career prospects, let’s have a look at the financial engineering profession in brief.

Financial engineers need to have a thorough knowledge of financial markets and the volatility of the markets. Based on knowledge of the financial market and financial theories, financial engineers plunge into creating simulations and predicting possible market behaviors. Their predictions are quite close to the actual ones, but sometimes they’re not accurate (as there are so many variables and dynamic market forces).

source: oakleafgroup

Financial engineers not only need knowledge of financial markets and theories but also significant competence in computer programming and applied mathematics. They also need to know statistics and economic theory to understand the various forces in the market which control market behavior. These skills help financial engineers create simulated financial models so they can most accurately forecast market behavior.

Most financial engineers work in risk management and financial analysis in various fields. Let’s have a look at the possible fields you can work in if you become a financial engineer –

• Derivatives Pricing
• Risk Management
• Structured Products
• Valuation of Options
• Execution
• Financial Regulation
• Corporate Finance
• Portfolio Management
• Trading

Financial engineering is a field that is being taught in many universities. Let’s look at what they are and which universities teach these courses.

source: Moodys

There are numerous courses you can do for financial engineering. We will pick the top 10 courses in the world.

According to quantnet.com, these are the top 10 financial engineering courses in the world –

source: quantnet.com 

You need three skills most if you want to thrive as a financial engineer.

source: fanniemae

Mathematical Skills for Financial Engineering

Training doesn’t mean knowing a few key concepts and thinking that you're good to go. It should be a lifetime affinity. The more you push forward, the better you will be in mathematics. And to perform great as a financial engineer, you need to be fascinated with mathematics. You should master the following -

• Linear algebra and differential equations
• Numerical linear algebra (NLA)
• Game Theory
• Calculus (differential, integral & stochastic)
• Probability & Statistics

Financial Skills for Financial Engineering

This would be your core subject, so it’s natural that you need to develop some muscles in financial theories and applied finance. Once the basic foundation of finance is clear, you need to go as deep as possible. Doing a course we have mentioned above will propel you to be good at financial theories and financial markets. You should master the following -

• Financial Modeling
• Portfolio Theory
• Accounting
• Financial Statement Analysis
  • Knowledge of credit risk-products
  • Equity & Interest rate derivatives
  • Fixed Income
  • Monte Carlo Techniques

Computer Programming Skills

Computer programming is a daily requirement in the life of a financial engineer. If not, how would you create simulated financial models? So better get some grip over computer programming. You should master these programming languages -

• C++ (it’s utilized for high-frequency trading applications)
• Python
• Data Mining
• Java, .NET
• VBA Macros
• Excel
• MatLab, SAS
• Object-oriented programming
• Big data modeling

Besides the above, you also need foundation knowledge in economic theory, logic, analytics, and statistics. Another crucial skill is communication (both verbal and written) because you need to communicate regularly with your teammates, and clients and write reports whenever required.

Not everyone can become a financial engineer. It needs guts, effort, and determination to succeed. But why would you put so much effort if you don't know about the results? Yes, compensation is not the only thing, but without compensation, the other things that you are looking for won’t give you any nudge.

So let’s have some idea about what financial engineers make.

Let’s look at what payscale.com mentions about financial engineers' salaries.

source: payscale.com

Everybody in the financial engineering field mentioned greater job satisfaction. Two things mattered most in coming up with this median salary figure (i.e., US $89,000). The first was an experience in the field, and the second was geography. 83% of respondents are men, and the remaining 17% are women in the field.

source: payscale.com

Almost all the respondents mentioned that they get medical coverage from their employers and dental insurance coverage.

The most important skill in the financial engineering profession, according to payscale.com, is financial modeling.

source: payscale.com

Now you know how much compensation you can expect from the financial engineering profession. But you may feel the need to compare your compensation with related professionals. So, here’s what payscale.com came up with -

source: payscale.com

If you pay heed to the median salary of each related profession, you would see that only Actuary, Associate – Investment Banking, Associate – Venture Capital, and Associate Director of Financial Services have similar or more median salaries than the median salary of a financial engineer. This is good news because as you gain more experience, you will receive better compensation, and only a few other professionals will be able to match your expertise and income level.

To better understand the median salary of financial engineers, we also looked at the reports of indeed.com. Let’s have a look at the analysis indeed.com came up with in regards to financial engineering salary.

According to indeed.com, the median salary of financial engineers is a bit higher than the recommendation of payscale.com. To be precise, the median salary per indeed.com is US $8,000 higher per annum. Moreover, the report of indeed.com is more updated as it mentions the median salary of financial engineers as of 1^st August 2016.

Indeed.com has also found out the recent trends in the compensation of financial engineers. Let’s look at the trend, and then we will try to analyze it and whether it's good news for would-be financial engineers or not.

This trend talks about three years of constant upward and downward pull in the compensation of the financial engineers. Looking closely, you will see an upward pull in the compensation from July 2012 to January 2013. From January 2013, we can see a downward pull in compensation. That downward pull remained constant in February 2013 and March 2013. From April 2013, there was another upward pull. But that didn’t last for long. The upward pull stayed till May 2013 and gradually decreased during June 2013. And in July 2013, there was a drastic downward pull, which stayed constant till September 2013. From September 2013, the compensation curve started to increase and reached an all-time high in January 2014, and from then onwards, there has been no increase or decrease in the compensation curve. As this is a two-year-old report, it would be difficult to conclude anything from this. But there is one thing that can cause a bit of concern for would-be financial engineers: saturation in the compensation. It can be seen that there is saturation between the period January 2014 and May 2014.

So you need to pay special attention to your skills because if in 2016-17, the saturation continues, you need to have expertise and skills to stand out in the crowd.

No. There is no shortcut to success. But there can be ways successful people have followed, which you can emulate and become successful. In financial engineering careers also, there is a way to get to greatness. Here’s how.

According to Business Insider, if you want to make your mark in financial engineering, here’s what you should do -

• Find internship opportunities in reputed firms and give everything to learning the trade during your stay of three months in the company.
• Quote your annual salary (expected) when you go for an interview more than your annual salary during your internship opportunity.

The first point is self-explanatory. But the second needs some explanation.

According to Business Insider, in 2011, more than 65 graduates went to internships in reputed firms. Their monthly salary was US $7,839. They were getting paid monthly, and they were only paid for three months. But instead of quoting the monthly salary, if we take the annual salary based on their monthly salary, it would be US $94,068 per annum.

While analyzing the survey of indeed.com and payscale.com, we found that the median salaries of financial engineers per annum are US $97,000 and US $89,000, respectively. We need to consider that the median salaries reported by indeed.com and payscale.com result from experience and skills.

So, when you come out of the financial engineering/master of finance program and want to get ahead in your financial engineering career, it's better to look for internship opportunities in the most reputed organizations. If you can crack the code, you will be able to quote the expected annual salary based on the stipend you would get from your internship opportunity. And according to Business Insider, it's a lot more than one inexperienced graduate can expect to get.

Moreover, you can go to multiple internship opportunities while paying heed to learning the needed skills and getting your expected stipend.

Multiple internship opportunities have four big advantages –

• First, multiple internships will add a couple or triple reputed brand names to your resume, which is always good if you're looking for a lucrative opportunity.
• You may get absorbed in the reputed firm/s at the end of your tenure if you prove to be a great asset to the company.
• Even if you cannot get absorbed into the reputed firm you would do your internship in, you will always be able to quote the annual salary for your future employment opportunities.
• Lastly, maybe the most important of all is you would learn a ton about the trade-in these reputed firms.

So look out for internship opportunities and use this great strategy to enhance your compensation.

Financial engineering is a dynamic field where you always need to be updated. And as you need to think both ways (from inside-outside and outside-inside), the information will catalyze your success.

The more you know, the better your chances of application, and thus, you could fetch better compensation from the companies you would be employed in. Just don’t leave out any opportunity for constant learning, especially in finance, mathematics, and computer programming, and you’re good to go.

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