Problem description:

I am an undergraduate student in metalworking. I have read several textbooks on metalworking, but I found that besides introducing those derivatives, it is more comprehensive to talk about some supervision contents. So financial engineering is just to study this?

Analysis:

First, the meaning of financial engineering and its basic composition

Financial engineering has appeared in relevant literature, but it was not until the late 1980s that Leland and Rubins, the founders of dynamic hedging strategy-portfolio insurance, began to discuss it. A new science of financial engineering. 1988, Finnerty, an American finance professor, gave the formal definition of financial engineering for the first time, that is, "financial engineering includes designing, developing and implementing new financial tools and methods, and providing creative solutions to financial problems.

Generally speaking, the concept of financial engineering has narrow sense and broad sense. Narrow financial engineering mainly refers to the use of advanced mathematics and communication tools, on the basis of existing basic financial products, to carry out different forms of combination decomposition, in order to design new financial products that meet customer needs and have specific profit and loss characteristics. Financial engineering in a broad sense refers to all technological developments that use engineering means to solve financial problems. It includes not only financial product design, but also financial product pricing, trading strategy design, financial risk management and other aspects. This paper adopts the broad concept of financial engineering.

Financial engineering is the natural result of continuous financial innovation and improvement of its own efficiency in the financial industry. The reason is that the application scope of financial engineering comes from financial practice and is all applied to financial practice. He said, to sum up, financial engineering is applied in three major fields: first, the design and development of new financial instruments; The second is to develop new financial tools and facilities, with the purpose of reducing transaction costs, improving operating efficiency, tapping profit potential and evading financial supervision; Third, make creative solutions to solve some financial problems or achieve specific financial goals. The components of financial engineering are all kinds of existing financial instruments and financial means. No matter how complex financial products and tools are, they can be decomposed into various basic financial instruments. Such as traditional financial products (such as stocks and bonds) and their derivative financial instruments (such as forwards, futures, swaps and options). ) are compared to the basic materials used to build houses, so all kinds of new financial products are buildings and mansions built with these simple basic materials. Different structural combinations will form high-rise buildings with similar structural shapes. At present, there are more than 3,200 kinds of financial innovative products with a face value of 18 trillion US dollars. At present, mature financial products can be roughly divided into four categories: equity category, creditor's rights category, derivative category and synthetic category, among which the most important one is a large number of derivative securities instruments. Synthetic financial products span more than two markets: interest rate market, foreign exchange market, stock market and commodity market. Both securities depository receipts (DR) and stock index futures belong to this category. Basic financial means include: electronic securities trading, private placement and public listing of securities, registration on shelves, electronic fund transfer, etc. These are closely related to the development of modern science and technology, especially computer and communication technology.

The operation of financial engineering has standardized procedures: diagnosis-analysis-development-pricing-delivery, and the basic process is programmed. Among them, from the feasibility analysis of the project, the determination of the product performance target, the optimal design of the scheme, the product development, the determination of the pricing model, the simulation test of the simulation, the application and feedback correction in small batches, to the sales and promotion in large batches, all links are closely and orderly. Most innovative new financial products have become a tool to creatively solve other related financial problems by using financial engineering, that is, the basic unit of combined products.

In financial engineering, its core lies in developing and designing new financial products or businesses, and its essence lies in improving the efficiency of enterprises. Including: (1) the creation of new financial instruments, such as the first zero coupon bond and the first swap contract; (2) Development and application of existing tools, such as applying futures trading to new fields and developing a large number of options and swaps; (3) Combining the existing financial instruments and means into new financial products, such as forward swaps, futures options, and new financial structure through combinatorial decomposition technology. All its design principles often show the following characteristics: (1) stripping and hybridization. That is, using cutting-edge technology to strip, decompose or hybridize risks and benefits, and create a new relationship between risks and benefits. For example, the coupon of national debt is separated from the principal, sold separately, and then SRTIPS is created, and then combined with swaps to produce SRTIPS swap products; (2) Indexing and securitization. Indexing is to link the value of some basic financial instruments with some market indicators, such as stock index and LIBOR. In order to avoid the loss of reverse market changes, it is often designed in the form of options. Securitization is to issue new securities on the basis of the original illiquid assets, such as real estate, bad debts and junk bonds, such as asset-backed bonds or asset swap securities; (3) Margin mechanism. Reduce the default risk of both parties to the transaction, ensure the fairness of the transaction, and greatly reduce the capital occupation of financial institutions; (4) Externalization of business statements. What influence does the regulatory authority have on the capital of commercial banks?