Financial engineering Financial engineering is a multidisciplinary field involving financial theory, the methods of financing, using tools of mathematics,

computation and the practice of programming to achieve the desired end results. Financial engineering is, in essence, the phenomenon of product and/or process innovation in the financial industries. Financial engineering is a process that utilizes existing financial instruments to create a new and enhanced product of some type. Just about any combination of financial instruments and products can be used in financial engineering. The process may involve a simple union between two products, or make use of several different products to create a new product that provides benefits that none of the other instruments could manage on their own. One excellent example of financial engineering is financial reinsurance. Companies that offer reinsurance options essentially provide a way for the ceding insurer to minimize a drain on available resources when a major shift in premium growth or reduction is taking place. In this scenario, the process of financial engineering helps to create a stable environment that will allow the insurer to remain solvent and stable even when extreme conditions exist. For the consumer, the work of a financial engineer to create new finance product offerings can be a great advantage. In some instances, the new and improved product is simply a repackage of several independent but complimentary products made available at a lower price. For example, the consumer may find that purchasing insurance coverage that provides dental, hospital, and prescription coverage may be significantly less expensive than purchasing individual plans. Financial engineering works in other environments as well. The financial theory of offering several existing products under one package has become very common in the telecommunications industry. Many providers today offer bundled service packages that include local phone service, unlimited national long distance, Internet service, and cable or digital satellite television. The end result of this type of arrangement means one lower price to obtain three or more services at significant cost savings to the consumer. Sometimes known as computational finance, financial engineering relies heavily on mathematically calculating the outcome if various combinations of financial instruments are offered under one umbrella as a package deal. Usually, the calculations indicate that the providers stand to do very well with the new hybrid financial product, as the product holds the potential to attract new consumers who would have foregone use of one or more of the instruments if the only option was to purchase them individually. Need for financial Innovation The development of new financial instruments and processes will enhance shareholders', issuers' or intermediaries' wealth. There has been recent financial innovations - from adjustable rate preferred stock to zero-coupon convertible debt but these all can be classified into three principal types of activities: securities innovation; innovative financial processes; and creative solutions to corporate finance problems. All these innovations are implemented using a few basic techniques, such as increasing or reducing risk (options, futures and other more exotic derivatives - see RISK MANAGEMENT), pooling risk (see MUTUAL FUNDS), swapping income streams (interest rate swaps), splitting income streams ('stripped' bonds), and converting long-term obligations into shorter-term ones or vice versa (maturity transformation). But to be truly innovative, a new security or process must enable issuers or investors to accomplish something they could not do previously, in a sense making markets more efficient or complete. Finnerty describes ten forces that stimulate financial engineering. These include risk management, tax advantages, academic research agency and issuance regulation compliance or evasion, cost reduction technological advances interest and exchange rate accounting gimmicks changes

Model for new product development Mathematical and financial models for pricing derivative securities. Examples include Black-Scholes, stochastic volatility models, and Heath-Jarrow-Morton among others

In finance we study how to manage funds. . Physics, because of its astonishing success at predicting the future behavior of material objects from their present state, has inspired most financial modeling. This course covers the analytical and numerical methodologies applied by hedge funds and derivatives trading desks to price complex derivative securities and devise arbitrage strategies. We will apply these methodologies to several case studies, whose topics range from relative value trades in equity options and fixed income instruments, to the pricing of convertible securities using numerical methods. About half of the course is devoted to credit risk and securitization. Numerous profitable opportunities are now available as thegovernment tries to jump start the securitization market again. Current scenario in India Financial services can be defined as the products and services offered by institutions like banks of various kinds for the facilitation of various financial transactions and other related activities in the world of finance like loans, insurance, credit cards, investment opportunities and money management as well as providing information on the stock market and other issues like market trends. Insurance A promise of compensation for specific potential future losses in exchange for a periodic payment At present Insurance sector is growing at fast pace of 20%. Together with banking services add &% to Nati Indian depository Receipt A negotiable, bank-issued certificate representing ownership of stock securities by an investor. A receipt issued by a bank as evidence of ownership of one or more shares of the underlying stock of a corporation that the bank holds in trust Credit derivatives A credit derivative is a derivative whose value derives from the credit risk on an underlying bond, loan or other financial asset. Credit derivatives are bilateral contracts between a buyer and seller under which the seller sells protection against the credit risk of the reference entity Venture capital Venture capital is the term for money invested in young, fast growing companies. New phenomenon, especially in India. Also called as risk capital issues to financial services sector in India FDI in proprietary trading of derivatives by foreign broking companies Taxation of derivatives Taxation of Mutual funds Challenges to financial services sector in India BASE II IMPLEMENTATION CAPITAL ADEQUACY AND NEW INSTRUMENTS COMPREHENSIVE RISK MANAGEMENT Capital efficiency Efficient corporate governance Compliance with international accounting standards Capacity building Application of advanced technology Outsourcing risks