Like these sciences, financial science has gone through the stages of description and analysis, and developed into an engineering stage-financial engineering in the late 1980s. In other words, financial engineering is the third stage of the development of financial science-the engineering stage. The emergence of financial engineering has pushed financial science to a new height-high technology in modern financial field. Before the early 1950s.
Before the early 1950s, the research of finance mostly relied on empirical analysis, rather than theoretical and normative discussion, and there was no detailed quantitative analysis. From the early 1950s to the late 1970s.
It is generally believed that modern financial theory originated from the portfolio theory put forward by Harry markowitz (1952, 1956, 1959) in the early 1950s, which not only laid the foundation for modern portfolio theory, but also was regarded as the beginning of analytical finance. In fact, Markowitz proved that an investor's optimal portfolio-with the maximum return at a given variance level or the minimum variance at a given return level-would be an effective portfolio with mean variance, and transformed the investor's asset selection problem into a linear programming problem with a given objective function and constraints. It is this contribution that has triggered a lot of analysis and research on modern portfolio theory. In the early 1960s, Leland Johnson (1960) and Jerose Stein (196 1) extended the portfolio theory to hedging, thus forming a modern hedging theory. A group of scholars represented by William Sharp (1961), john turner (1965) and Jan Mossin (1966) turned their attention from Markowitz's research on individual investors' micro-subjects to the whole market. Considering what kind of market state will be caused by the concerted action of all investors who follow markowitz's hypothesis, the same conclusions about the equilibrium of the capital market are reached in 1964 and 1965 respectively, and the famous capital asset ranking theory is creatively put forward. However, the strict hypothesis of the capital asset ranking theory has caused great obstacles to the empirical test, which makes scholars have to devote themselves to modifying the hypothesis to make it more realistic. Scholars such as Mayers (1972), Robert Merton (1973), Elton and Gruber (1978) study the asset pricing model by relaxing one of the assumptions while keeping the other assumptions unchanged. Scholars represented by fischer black, Myron Scholes (197 1) and Ross (1976) basically gave up the theoretical hypothesis of ranking capital assets and re-established the model based on new assumptions. Thus, the first complete option pricing model (there is no option market in 197 1 year, and the Black-Scholes option pricing model can be said to be the only theoretical discovery that is ahead of economic facts since economics came into being) and arbitrage pricing theory are put forward respectively. It marks the maturity of analytical modern financial theory. It can also be said that modern financial theory has achieved a leap from descriptive science to analytical science. Especially in robert merton's works, the new method is most obvious. He laid a lot of mathematical foundations for analytical finance and achieved a series of breakthrough results. Since the early 1980s.
In the 1980s, he also made great achievements in financial theory. The work mainly focuses on expanding the early theory, testing the operation of new financial instruments and new financial markets, and making very detailed and necessary observation and analysis of risk management tools and technologies. In fact, in the 1980s, when little progress was made in trying to find a well-behaved equilibrium pricing model, some scholars no longer studied the investor utility function as Markowitz did at the beginning, but examined the relationship between information and stock price changes through empirical analysis. A representative P-order conditional heteroscedasticity autoregressive (ARCH(p)) model proposed by Engle (1982).
After that, a new generation of financial economists broke through the traditional methodology and way of thinking. For example, we abandon the assumption that risk and return are linear, adopt nonlinear dynamic pricing models, such as EGARCH (exponential GARCH) and AgaRCH (asymmetric GARCH), and even try to abandon the basic assumption that risk and return are positively related, and put forward the concept of price core with black box nature. Darrell Duffy and others are the main contributors to the transition of modern financial theory from analytical science to engineering science. Their economic research on the general equilibrium theory of incomplete market provides important theoretical support for financial innovation and the development of financial engineering. They theoretically proved the rationality of financial innovation and financial engineering and the great significance to improve the efficiency of social capital resource allocation. Various innovative activities supported by financial engineering not only transfer value, but also actually create value by increasing the completeness of financial markets and improving market efficiency.
In the late 1980s, some scholars realized that finance, as a science, was undergoing the second fundamental change, that is, from analytical science to engineering science. For example, Hayne Leland and Mark Rubinstein began to talk about "the new science of financial engineering". 1988 John Finidi gave a formal definition of financial engineering.
However, as an independent discipline, financial engineering was not established until 1990s and developed rapidly. Song (1998) thought that the important symbol of its establishment was the establishment of "International Institute of Financial Engineers" in 199 1. The aim of the college is to "define and cultivate a new major in financial engineering".
pay high attention to
Governments around the world, financial academics and practitioners are paying more and more attention to the research and development trend of financial engineering.
Since 1990, a series of major events have taken place in the international financial community: Mexican financial crisis, the collapse of British Bahrain Bank, the huge losses of French credit lyonnais, the merger of Tokyo-Mitsubishi Bank, the Southeast Asian financial crisis caused by the devaluation of Thai currency (1998), and the continuous sharp depreciation of Japanese yen. 1At the end of 998, a series of speculative mistakes by American hedge funds made people extremely alert to the problems in financial reform and interested in the research and application of financial engineering.
In fact, financial engineering in western developed countries has developed very rapidly. University of Chicago, Massachusetts Institute of Technology, Stanford University and new york University of Technology all offer degrees or professional certificates in financial engineering. Finance and finance professors from Harvard Business School, who are famous for case teaching, have compiled and published a collection of financial engineering cases. The academic research of financial engineering has been rapidly applied. For example, new york University of Technology has established close business cooperation with important financial institutions on Wall Street. 1Since July, 1997, faced with the impact of Thailand's currency devaluation, China Academy of Sciences has established a national-level "Financial Hedging Countermeasure Research Group", which is committed to combining mathematical analysis with economic problems and theoretically studying the risk control and risk management of emerging financial instruments. Officials from the head offices of the People's Bank of the State Council and China have repeatedly instructed to speed up the establishment of the discipline of financial engineering. The National Natural Science Foundation also gives strong support to research projects in the fields of financial mathematics and financial engineering. As early as 1996, the research on some major issues of financial mathematics, financial engineering and financial management was approved by the National Natural Science Foundation as a major scientific research topic in the Ninth Five-Year Plan.
During the period of 1997, the research center of financial mathematics and financial engineering and the department of financial mathematics were established successively in Peking University, and the departments of statistical finance were also established successively in the University of Science and Technology of China, Nankai University and Shandong University. In July of the same year, the Department of Financial Mathematics of Peking University cooperated with United Securities Company to establish "Peking University Integrity Financial Mathematics Laboratory". At the end of the same year, the Financial Engineering Research Center of Shaanxi University of Finance and Economics was established. I believe they will make useful attempts and contributions to the financial reform in China, especially to the development of financial mathematics and financial engineering. In addition, some scholars from Tsinghua University, Huazhong University of Science and Technology, Xi Jiaotong University, Shanghai Jiaotong University, Northeastern University and East China Normal University are also active in the research field of financial mathematics and financial engineering, and have begun to recruit undergraduates, master students and doctoral students. For example, Xi Jiaotong University began to recruit doctoral students in the direction of financial optimization methods from 1996. 1999 in July, the department of financial mathematics in Peking University will have the first batch of undergraduate graduates of financial mathematics. With the development of high technology, the pace of financial innovation and the development of financial engineering are accelerating.
Financial engineering develops with the change of financial innovation and promotes the change of financial innovation. It is the core part of financial innovation and the most advanced science in the financial field of western countries. On the one hand, with the continuous development of high and new technologies such as computers and communications, and the continuous improvement of financial infrastructure, it provides strong technical support for financial innovation and financial engineering. On the other hand, the fierce competition of globalization stimulates enterprises and financial institutions to demand financial innovation and financial engineering achievements and products in order to avoid risks, which will inevitably lead to the accelerated development trend of financial innovation and financial engineering. Diversification trend of financial engineering research methods
In the research of financial engineering, the most basic method is mathematical method, but there is also a trend, that is, all kinds of frontier theories of natural science and the latest engineering technology are widely introduced into financial engineering for research, which makes the gold field show a brand-new look and broad prospects. We know that mathematical methods involve a wide range of contents, from basic algebraic knowledge, calculus and linear algebra to differential equations, operational research and optimization techniques, and even fuzzy mathematics, game theory (including differential games), probability theory in statistics, stochastic processes and other stochastic analysis theories and methods (including backward stochastic differential equations). However, with the rapid development of financial engineering and the mutual penetration of various disciplines, various frontier theories of natural science and the latest engineering technologies, such as chaos theory, wavelet theory, genetic algorithm, complex system theory, artificial intelligence technology (including knowledge engineering, expert system and artificial neural network, etc.) and so on. ), simulated annealing method and object-oriented method have become or are becoming important theoretical and practical tools of financial engineering. In the research and technical development of financial engineering, the design of financial products and financial tools has the trend of software and standardization.
CAD technology, which has been widely used in many engineering disciplines, has also begun to show its power in financial engineering, and commercial software such as Financia-CAD for Excel, Financial CAD for Visual Basic and C has appeared. The successful development and commercialization of this kind of software has enriched the practical tools of financial engineers, even changed the concept of financial technology development to a certain extent, greatly reduced the cost of financial technology development, and will surely make financial engineering technology develop more rapidly and be widely used.