A Lesson from IIT: Financial engineering can promise a rewarding career, here’s how

My journey of research and teaching in Financial Engineering, at IIT Guwahati began about 15 years ago, focusing on several undergraduate major courses in this domain. Over this decade and a half, I have been actively involved in teaching both the fundamentals of Financial Engineering (including pricing of financial instruments, asset management strategies via portfolio theory, risk management practices, and aspects of computational approaches in the world of finance and banking) as well as state-of-the-art topics such as algorithmic and high-frequency trading and sustainable (or green) finance.

Globally, many top universities and institutes now offer exclusive master’s programmes in Financial Engineering, Financial Mathematics and Quantitative Finance. These programmes emphasise both theoretical and hands-on practical training of their students.

To better understand what this area entails, one needs to recognise that in the last few decades, the finance and banking sector has undergone tremendous changes, especially in terms of the significantly large variety of financial instruments that exist today and its emergence as a multi-trillion dollar industry. The globalisation of banking sector brought about major changes in the context of financial innovation and risk management. Terms like Derivatives, Risk Management, Hedge Funds, and Algorithmic Trading have become common in the parlance of this sector. Financial derivatives play a vital role not only in risk management practices but also as attractive instrument for market participants seeking arbitrage opportunities and speculatory position. The pricing of such financial instruments or derivatives is one of the predominant forte of financial engineers, who not only need to have an extensive understating of the nature of such instruments, but also the requisite training of the mathematical, statistical, and computing tools.

Today, the interconnectedness of the finance and banking sector across the globe has resulted in the formulation of the Basel regulations (applicable for internationally operative banks) with the mandate to ensure the resilience of the entire banking and finance framework.

Currently, the banking and finance sector is experiencing a great demand for highly skilled Financial Engineers (or Quants) who will contribute as financial analysts and as financial risk managers. While this area predominantly emphasizes on skills from STEM areas, it also accommodates individuals from diverse academic backgrounds. Furthermore, the expansion of the insurance sector (especially with the entry of private insurance companies) has opened up many avenues for aspiring actuaries.

At IIT Guwahati, as a part of the undergraduate major programme of BTech (Mathematics and Computing), I have had the privilege of training our students in the areas of Financial Engineering, Portfolio Theory, Financial Risk Management, Computational Finance, and Algorithmic & High Frequency Trading. I have held the view that these subjects need to be made accessible to learners across the country, and it is with this thought that I have offered two NPTEL courses (in Mathematical Finance, jointly with a colleague, and Mathematical Portfolio Theory), the videos of which are available in the public domain for the benefit of interested learners. Many of our graduates have gone on to secure professionally rewarding positions in investment banking, hedge funds, and high-frequency trading firms, all of which bear testimony to the potential of professional future as a “Quant”.

In particular, our research group (comprising of undergraduate majors, master’s and PhD students) has worked on a plethora of diverse topics in Financial Engineering. Some of these include pricing of options on a trading account, robust approaches to asset management, risk management practices in conjunction with regulatory requirements, data analytics in the insurance sector, statistical and data science approaches in management of financial portfolios, and most recently on various facets of sustainable finance (in the paradigm of the sustainable practices that need to be adopted to align the financial sector with the broader targets set forth under the SDGs).

(The writer is a Professor, Department of Mathematics, IIT Guwahati)

(A Lesson from IIT is a weekly column by an IIT faculty member on learning, science and technology on campus and beyond. The column appears every Friday)

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