1

INTRODUCTION

1.1 Forty years of evolution

1.2 What is financial engineering?

1.3 The nature of risk

1.4 Financial engineering and risk

1.5 Layout of this book

1.1 Forty years of evolution

As we look around us, it is easy to think that the world has always been just as we see it today.

We take for granted smart phones, laptop PCs, satellite TV and instant global communications. We don’t marvel that we can sit in an office in London and use our PC to set up an instant three-way video conference call with Japan and San Francisco. Need to send an urgent document to Tokyo? We simply scan and email it, knowing that our document will arrive just seconds after we send it.

The media bombard us daily with world news, economic figures and analysis, ...

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