Practical Methods of Financial Engineering and Risk Management

Introduction

The two fields featured in the title of this book—Practical Methods of Financial Engineering and Risk Management—are intertwined. The practical methods I teach in this book focus on the interplay and overlap of financial engineering and risk management in the real world.

My goal is to take you beyond the artificial assumptions still relied on by too many financial practitioners who prefer to treat financial engineering and risk management as separate specialties. These assumptions don’t just distort reality—they can be dangerous. Performing either financial engineering or risk management without due regard for the other has led with increasing frequency to disastrous results.

The dual purpose of risk management is pricing and hedging. ...