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Financial Engineering is a new exciting branch which deals with creation, management and administration of new financial instruments based on new strategies. Engineering methodologies and mathematics are applied to derive solutions for financial issues. Applied Mathematics combined with financial theories tries to bring out solutions to finance problems.

This is all about creating new securities or processes, and designing new financial instruments, especially derivative securities. This new branch is also considered to be the process of employing mathematical, finance and computer modeling skills to make pricing, hedging, trading and portfolio management decisions. It utilizes various derivative securities and other methods and aims to precisely control the financial risk that an entity takes on. Methods can be employed to take on unlimited risks under certain events, or completely eliminate other risks by utilizing combinations of derivative and other securities.

Financial engineering can be applied to many different types of currencies and pricing options. These include equity, fixed income such as bonds, commodities such as oil or gold, as well as derivatives, swaps, futures, forwards, options, and embedded options. With financial engineering come many risks. Risks are divided into market risk and credit risk. Market risks can be managed using risk identification, risk measurements, and risk management. Credit risks can be managed using credit modeling and credit pricing.
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