Is finance a science? Many say no, but there is a relatively new breed of financial professionals who say yes. Financial engineers believe that applied mathematics and data science can provide an edge in trading, risk management, and corporate finance.
Their ideas are catching on. Although it wasn't that long ago that companies started adding mathematicians and coders to the finance department, today quantitative investing dominates some markets. Things happen fast in the digital age, especially when there's lots of money to be made.
In response to this trend, colleges and universities have created relevant programs for students wanting to pursue careers in financial services, granting such degrees as the:
This program provides the theoretical and practical understanding needed to expertly evaluate, formulate and implement financial models used in the financial sector.
This degree prepares graduates with the unique training needed to thrive in high-ranking careers in private wealth management and investment banking in both corporate and entrepreneurial settings.
This program prepares students for careers in quantitative finance, covering financial models and theory, and computational and mathematical techniques in the workings of financial markets.
This degree offers a more scientific approach to the mathematical methods and theory used in analyzing credit risk in trading and investing, and how they behave in contemporary economics.
A more recent addition to the quant finance lineup is the Master of Science in Financial Engineering (MSFE). It's a finance degree, meaning that at its core it's about managing investments. MSFE programs tend to be cheaper and shorter than MBA programs, but graduates can earn just as much—provided they've got a knack for statistics, computer science, math, and programming.
You're probably wondering just how much you will earn with a master's in financial engineering. In this article, we'll answer that question and cover the following:
Financial engineering is a multidisciplinary field. You'll find one- and two-year Master of Science in Financial Engineering programs offered via the mathematics, finance, business, and economics departments at various colleges and universities. MSFE faculty come from all these departments, as well as from computer science.
The master's in financial engineering is designed for students who want to learn to apply engineering methodologies and quantitative methods to modern financial problems. It's the optimal degree for anyone who wants to treat finance and all it entails—saving, investing, borrowing, lending, and managing risk—as a hard science.
The skills you'll learn in an MSFE program can prove useful across industries. Financial engineering master's graduates work for investment banks and hedge funds and other financial services industry stalwarts, but you'll also find them at insurance companies and regulatory agencies. They also work in data analytics and fraud detection.
There is no standard financial engineering curriculum, but all programs cover advanced concepts in mathematics, computing, and finance. Nearly all students in MSFE programs study subjects like:
These courses will use advanced quantitative techniques to prepare students for using numerical methods to solve complex functional equations.
Coursework here should provide the skills needed for prediction, investment, and risk management of derivative securities, and stress a technical approach with real-world applications.
The study of economics involves communication, problem solving, and the use of analytical skills to understand people and how finance relates to the public sector.
Learning to identify and analyze potential risk in industries like sales, marketing, private banking and trade is key to protecting assets and earning capacity.
Making data-driven predictions is critical to modern business, and courses on computer science and artificial intelligence in machine learning will explore topics including development of algorithms and software, and both supervised and unsupervised learning.
The focus here is on dissecting the methods and theories of the theoretical constructs that represent the processes of economics and their quantitative relationships.
Balancing risk and return is the key to maximizing strategic objectives. This coursework focuses on understanding how to identify, measure and manage risk.
The relationship between pricing and hedging should be explored in order to understand the variables to consider in creating the best balance between cost and protection of options.
The study of probability as a quantitative tool in finance is key to understanding how to develop and test economic theories for viability, using statistics and robust empirical analysis.
Using advanced mathematical modeling, this coursework will study how quantitative finance uses large datasets to analyze securities and financial markets.
Also known as random process, stochastic process is a group or family of random variables used as mathematical models in a wide range of disciplines from biology and chemistry to finance.
Coursework here will use the unique relationships in time series models and previously observed data to predict future values.
After covering these basics, financial engineering master's programs can veer off in wildly different directions. Some touch on government finance and financial management in healthcare, while others spend more time on programming and systems optimization or investing principles. Most MSFE programs offer only a generalized degree, but a few offer concentration or specialization areas in:
Maximizing return on investment is the goal, by learning asset allocation strategies and how to assess opportunities and manage risk.
Focusing on the language and design of computer models is a critical piece in creating effective, reliable and flexible systems.
This financial specialization is tech-based, using computer simulations to make hedging, trading and investment decisions.
This specialization demonstrates how focusing on comparative advantage is possible when risks are mitigated through derivatives like forwards, futures and options.
This concentration can help you provide corporations, governments, and financial institutions with assistance in developing and assessing economic policies.
Keeping pace with the innovation in financial technology is a challenge, but this concentration can help teach agility and endurance.
Finance relies more and more on technology, automated trade and algorithms to invest, trade and track orders in the modern market.
Finding the right Master of Science in Financial Engineering program is a matter of assessing programs with your interests and career goals in mind. Think about why you want to earn this degree. Some programs are highly theoretical; these are a better fit for MSFE students fascinated by the theories underlying current market performance and the complicated mathematics used to predict future performance. Others focus on practical applications of financial engineering in the real world, which may be better suited to those seeking a career in business and banking.
Next, consider where you want to be working in five years. You can learn a lot about what your future will look like—and what your earning potential will be—with this degree by checking out the career placement data on each MSFE program website. If you can't find it, call an admissions counselor.
Financial engineering as a field is regulated by the International Association for Quantitative Finance. It doesn't offer accreditation to financial engineering programs, but does publish a useful guide to financial engineering degrees where you can compare MSFE and related quantitative finance programs at different colleges and universities.
The first approved financial engineering curriculum was developed at the Polytechnic Institute of New York University in the 1990s. Today, you'll find some of the best master's in financial engineering programs at schools like:
"With cutting-edge brain science, path-breaking performances, innovative startups, driverless cars, big data, big ambitions, Nobel and Turing prizes, hands-on learning, and a whole lot of robots, CMU doesn't imagine the future, we create it."
"Through its internationally recognized Engineering & Industrial Applied Mathematics Clinic, the Institute provides students first-hand experience solving significant mathematical problems for business and government clients."
"Partnerships with research and cultural institutions in New York enhance Columbia’s educational offerings, while the vast array of industries centered in the city provide numerous opportunities for professional development."
"Baruch College is ranked among the region's and nation's top colleges by US News and World Report, Forbes, Princeton Review… our campus is within easy reach of Wall Street, Midtown, and the global headquarters of major companies."
"The Financial Mathematics program aims to equip graduates with the engineering-driven approaches widely used to construct and deploy the financial transactions and processes that, in their context, function as the international financial system and the capital markets."
Graduate students become "part of a community of scholars at one of the world’s leading research universities… (working) closely with distinguished faculty, who routinely push the frontiers of human knowledge with their research and scholarship."
"Our mission is to educate leaders of tomorrow for technology-based careers; to celebrate discovery, and the responsible application of technology; to create knowledge and global prosperity."
"Our advanced degree programs emphasize entrepreneurship, drive innovation through the use of technology, and broaden your understanding of both domestic and foreign business practices."
"From faculty members who are the force behind groundbreaking financial instruments to the industry leaders who advise on the curriculum, this STEM degree program is designed to be relevant in a constantly evolving industry."
"UCLA was 15th overall among the top 1,102 universities in the world in the respected Times Higher Education World University Rankings (which) rely on performance indicators such as the quality of teaching, research and the international mix of staff and students."
"A degree from the University of Illinois comes with a reputation for innovation, and our elite programs will challenge you to think critically and creatively in order to face pressing issues in every major industry of today’s global society."
"As a top-ranked private research institution, the University of Southern California offers everything you are looking for: world-class resources on a human scale, more academic opportunities than any other American university, a vibrant campus life, a location in the heart of a dynamic world center and the lifelong support of the Trojan Family."
Most of these colleges and universities offer on-campus programs. A handful of schools have online financial engineering master’s programs. West Texas A & M University and Stevens Institute of Technology both offer online MSFE degrees, but the best and most prestigious online master's in financial engineering degree is the one at USC's Viterbi School of Engineering.
Salary shouldn't necessarily be top of mind when choosing a financial engineering master’s program. Even so, it's worth noting that graduates from the top programs in financial engineering can potentially make more money. According to one salary report released by the Berkeley Haas School of Business, the average total first-year compensation for MSFE graduates was around $176,000. Zippia.com reports that education level can make a difference in salary. Finance engineers with a master's degree earn a median annual income of $129,000, compared to $107,500 for finance engineers who hold a bachelor's degree.
As noted above, MSFE holders work in many industries. Before you enroll in a master's degree program, it's worth mulling over the fact that your career choices (not your degree) will probably drive your earning potential. You could, for instance, work as a/an:
Financial engineers work in banks, investment firms, and mutual fund companies. They use analytical and mathematical tools to develop algorithms and analytical systems to determine whether specific asset classes and products are good investments. PayScale reports the average financial engineer salary is about $112,000, while Glassdoor reports an average salary of about $101,000.
In this role, your job is to make money with money. Investment managers help corporate and individual clients buy and sell trusts, stocks, and bonds by developing comprehensive, science-backed investment strategies. The average investment manager salary is about $113,500.
If you become a portfolio manager, your job will be to help companies and traders optimally allocate capital among different investment strategies developed by investment managers. The average portfolio manager salary is $94,500.
Thanks to the 2008 financial crisis, risk managers are in demand. These professionals review trading strategies and develop risk-management policies to help banks comply with regulations around capital, liquidity, buffers, and funding restrictions. The average risk manager salary is about $123,000.
In this role, you'll create the mathematical models, trading strategies, and even the software tools that drive trading decisions at your company. Identifying market opportunities and minimizing risk will be your main responsibilities. The average quantitative trading strategist salary is about $100,000.
This multifaceted role involves overseeing the financial health of an organization. A financial manager's responsibilities include directing investment activity and developing data-driven strategies to support the long-term financial health of the company. The median salary for financial managers is around $132,000.
The quick answer is more than most. Financial engineering graduates typically work in the banking and investment sectors, where their job is to turn money into more money. The work is, unsurprisingly, lucrative. Most MSFE holders make around $119,000—and some earn much more.
And that's just the beginning. According to some estimates, after amassing a few more years of experience, you could make anywhere from $175,000 to $400,000. The keyword is experience. Having a master's degree is critical if you want to move up the ladder in finance. However, if you don't bring significant relevant experience to the table, your master's degree in financial engineering might not add up to much. You may still end up having to pay your dues on the bottom rung of the ladder.
Consider, too, that money might not be the ideal motivator. At least according to Linda Kreitzman, executive director of Berkeley's financial engineering program, who said as much on the Admissions Straight Talk podcast: "I am not angry, but rather annoyed or concerned when someone says they only want to do this to make money. There is no reason not to want to make money, of course, but there must be other reasons to go into this field—passion to make a difference, to apply your skill set, passion for finance, to understand the markets, to create things." Keep this in mind if you apply to the UC Berkeley MSFE program.
The answer to this question depends not on how passionate you are about finance, but rather on how passionate you are about engineering. You can make a lot of money with this degree, but you'd better have the mind of a quant. In a paper about the quantification of finance written decades ago, Dr. Steven Shreve wrote: "The theory of finance has become increasingly mathematical, to the point that problems in finance are now driving research in mathematics." Finance, data science, mathematics, and technology have only gotten increasingly intertwined since then. Every student of finance has to be tech-savvy and analytically minded, but MSFE students also need coding skills and a much deeper understanding of the math that underpins finance as a science.
At the end of the day, there are easier ways to make money in less-technical areas of finance if you're really just not that into advanced math and hard science. Financial engineering is still a niche discipline, and you might command a higher salary with an MBA in Finance—especially if quant trading doesn't turn out to be the future of investing. On the other hand, if the idea of bringing your knowledge of algorithms and statistical programming in one or more of the financial engineering jobs mentioned above excites you, then this degree can give you all the skills you'll need to earn a pretty good living.
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