Jack Marshall, Ph.D. Co-Founder of the International Association of Financial Engineers (IAFE) and its Executive Director from 1992 to 1998
By the late 1980s it had become clear that finance was changing in a truly fundamental way. This change was driven in large part by the development of extraordinary new financial products, mostly derivatives of various sorts, and remarkable advances in financial theory. These new products, coupled with the advancing theory, made it possible to structure better solutions to long standing financial problems. The recognition of these changes led me to coauthor the first book on financial engineering and to later form the International Association of Financial Engineers (IAFE) to “define and foster the emerging profession of financial engineering.” Financial engineering involves the development and creative application of financial theory and financial instruments to structure solutions to complex financial problems and to exploit financial opportunities. Financial engineering is not a tool. It is a profession that uses tools, of which derivatives are one.Importantly, financial engineering differs from financial analysis. The term “analysis” means to “decompose in order to understand.” The term “engineering” means to “build.” When we first proposed the term “financial engineering” as descriptive of a new profession and discipline, we encountered considerable skepticism. But time has proved us right as some of the leading universities have introduced advanced degrees in financial engineering and employers seek out skilled financial engineering talent for jobs in investment banking, commercial banking, and all variety of investment management and risk management fields. Hedge funds in particularly make extraordinary use of financial engineering talent. Indeed, many of the modern hedge fund strategies are only possible because of the world.