All the Texts on Financial Engineering You Could Ever Want

http://www.classiccmp.org/transputer/finengineer/

by steveplace • 17 years ago

48 25 17 years ago

jwesley2• 17 years ago

Very good collection, but wouldn't the value of this material have been much higher before the financial crisis? It seems like the theories and methods applied in these texts played a large part in the downfall of the financial system. Mathematical models != financial markets. A lot of good math and statistics for people interested in those areas, but it will probably be decades until "financial engineering" loses the stigma of failure.

jibiki• 17 years ago

It took decades after Chernobyl for nuclear engineering to lose the stigma of failure.

Sarcasm aside, I think that you are half right. Some of the financial engineering stuff was genuinely wrong, and financial engineers will have to figure out what.

gaius7• 17 years ago

I've always been fascinated by how that works. Hindenberg pretty much killed the Zeppelin industry, yet airliners crash all the time and no-one's afraid to fly. The Titanic didn't herald the end of sea travel either. What's the difference?

jwesley2• 17 years ago

The problem is that finance is not really an engineering problem. Issues arise because the techniques used to distribute risk change the market value of the underlying assets. This was a major cause of the MBS issue. Financial engineering allowed risk from MBS's to be more easily distributed. This increased the demand for these securities, which increased their value. The price of the assets increased, even though the underlying value of the assets was exactly the same. Much of the value created by financial engineering is an illusion.

Dilpil• 17 years ago

Let's keep one thing in mind: financial engineering is not like civil engineering. It is not about helping society. It is about making money.

With that in mind, the practitioners of financial engineering aren't really doing so bad (the individuals, not their companies).

steveplace• 17 years ago

Some are valuable, others are stark reminders of how much hubris exsited before the financial collapse.

Example: here's one from Goldman Sachs which is essentially a sales pitch for adding Mortgage Backed Securities to a portfolio: http://bit.ly/N4dMb

A quote from that: We believe investors have the opportunity to significantly improve their risk/return profile by strategically allocating a portion of their portfolio to the MBS/securitized sector for two important reasons: 1) the historically attractive risk/return profile of the securitized sector and attractive yield opportunities relative to Treasuries and 2) the diversification benefits from introducing new sources of risk and potential return to the portfolio.

physcab• 17 years ago

There were some excellent shows on recently. One was a documentary on PBS about the fall of Bear Sterns and then ended like an biography about Hank Paulson. It was astounding how much the personalities of the key players involved effected the outcome of the financial mess.

Then last night I watched a special on CNBC that went into a lot of depth about many of the different investment vehicles. Basically the take home was that few people understood the underlying implications of all these esoteric ways of investing in the mortgage market. Even Alan Greenspan admitted that despite a strong mathematical upbringing and access to over 100 PhD's on a daily basis, he understood little about what was going on.

It didn't take much for smart people with less than stellar integrity to game the system.

tmdg• 17 years ago

I think that's a main issue. Many of these models are based on math that few people understand. I don't think it necessarily is an issue of integrity, but more an issue of traders and asset managers using the results of these mathematical models without fully understanding the implications and risks. They are, after all, probabilistic models and it seems like they weren't treated as such.

nazgulnarsil• 17 years ago

exactly, people were just saying "well the model says it will work", and didn't realize that the models they were using had huge assumptions hard coded into them.

mattjaynes• 17 years ago

Looking at that list reminds me of walking through the power tools section at Home Depot - full of tools I'd love to have an excuse to use someday, but don't at the moment. It's still always fun to look though ;)

All the Texts on Financial Engineering You Could Ever Want

Related Stories