Financial engineering: Engineers without hard hats

A Dictionary of Finance

Financial engineers don’t wear hard hats, even though some of the stuff they figure out is so complicated it might at first feel like a punch in the head. Don’t worry. Our expert explains how financial engineers work, in terms that anyone can understand.

Financial engineering is the application of mathematics to financial questions, typically using computer models.

Thomas Ribarits, who heads the European Investment Bank’s financial engineering division, explains what financial engineers do. It’s a complicated subject, though Thomas boils down option pricing to a level where he says someone with high school maths could understand it. In fact, he says, it’s all about common sense.

Thomas also solves a little dispute over the price of coffee between Allar and Matt on A Dictionary of Finance.

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