Financial Engineering: A tale of two colleges

Markets have existed as long as humans have. It began with trading basic goods such as meat. As society progressed, major financial empires have risen and fallen, physical money has largely became digital, and markets have became infinitely more complicated. The field of financial engineering has stepped in to navigate and simplify the modern market. The Master of Science in Financial Engineering (MSFE) at the University of Illinois is educating students to become leaders in the modern financial world. 

Professor Morton Lane is head of the Financial Engineering program at Illinois. He defines financial engineering as “the application of quantitative techniques to financial markets and financial products. Quantitative techniques include mathematics, science, statistics, analytics and other engineering techniques.”

In 2010, the Industrial and Enterprise Systems Engineering department and the College of Business collaborated to create MSFE. This program is the first to be shared between two U of I colleges. Professor Ramavarapu S. Sreenivas (RS), is head of graduate studies at ISE and has taught in the Financial Engineering department since its inception. He says finance professors teach “How the market works, how does all of this happen… Our department (ISE) does more the algorithms, the optimization, and other things like that.”
 
Professor Liming Feng has been part of the Financial Engineering program since the beginning. He says, “I was hired by the ISE department in 2006, with the expectation of helping build a professional financial engineering program, one of the first professional master's programs on campus.”

Over his time at Illinois, Feng says, “I’ve been involved in many aspects of the MSFE program, from helping design the curriculum, to recruiting the best qualified students, to helping students with job hunting, to teaching several required MSFE courses.”

Explaining the importance of financial engineering, Feng says, “Nowadays, trading can be rather technical. What’s the optimal way to construct a diversified portfolio that minimizes the risk for a targeted rate of return? How do you evaluate complex derivative securities and manage the risks that are associated with the trading of such contracts? How would you liquidate a large portfolio so that the trading cost and the trading risk could be better balanced? All of these tasks call for carefully designed quantitative models and algorithms. This is why financial engineering has been a natural fit for many students with mathematical, statistical, computer science, and engineering backgrounds and interested in solving realistic financial problems.”

Although there are prominent financial engineering programs at other schools, Sreenivas says, “The world’s epicenter of the futures market is up in Chicago.” This gives Illinois students an advantage due their close proximity to Chicago. A futures market involves futures contracts. Sreenivas describes a futures contract through this example: “I’m producing wheat and then I get a futures contract saying ‘I will deliver so many thousands of bushels of wheat at such and such price one year from now.’” Similar to insurance, Sreenivas says a futures contract is “not gambling, it’s buying yourself piece of mind.” 

Most students spend at least one day a week in Chicago. Lane says, “The vast majority of our students are going to end up in New York or Chicago. There’s only one way to learn about those markets. It’s not from textbooks. It’s from being close to the people who were involved in those markets.”  

Before becoming head of the Financial Engineering Program, Lane briefly taught at the London Graduate School of Business before spending over thirty years working in the financial sector. He worked at the World Bank, Discount Corporation of New York Futures, and Bear Stearns, before going on to create his consulting firm, Lane Financial LLC. Describing his transition back into academic life at Illinois, Lane says, “It was a new thing and I love new things, so they (the University administration) got me at the right time.”

After earning her Bachelor’s at the Central University of Finance and Economics in Beijing, China, Shihua Huang is in her third semester of the MSFE program. She says she chose Illinois because “the U of I has very good professors and good resources. The tuition fee is low here because it’s a public school. Also, the location is very good.”

Huang says her favorite financial engineering class is Statistical Methods taught by Professor Feng. She says she learned “solid knowledge to help me build financial models and also harness my analytical skills.” 

Out of the 9 times Feng has taught MSFE courses, he was named on the List of Teachers Ranked as Excellent by their Students 8 times. 

Every year since the beginning of the program, Feng has taught IE 522, Statistical Methods in Finance. In the first IE 522 lecture every fall, Feng says, “I always encourage students to start thinking about job hunting immediately… Students often find themselves under pressure looking for jobs in their second and third semesters. Many students told me that they wish they had listened to me and started earlier. It’s never too early to start.”

Professor Tatyana Deryugina of the College of Business teaches FIN 501: Financial Economics. One of the benefits of having a program across two departments, Deryugina says is, “Some of the people over in Engineering are better equipped to teach stochastic calculus than we are and so we utilize their talents. Some people over here [in Business] are better equipped to teach more classical financial tools. I think it really makes our program stronger because of that.” She also says, “It’s a lot of fun because we get to meet faculty we otherwise wouldn’t meet. I think it’s good for the students because we’re not necessarily trying to do everything ourselves.”

ISE Professor Alexandra Chronopoulou teaches IE 525: Numerical Methods in Finance. She says her favorite part about teaching in the Financial Engineering program is the students. She says, “They are very motivated. They know why they’re here and they know that they have to work hard to get their degree…. I love it.”

For Huang, one of the most difficult parts of the program is the homework. She says, “Back in China, we didn’t have too much homework throughout the semester. We only had finals… When I came here, the workload was very large.” 

Chronopoulou tells students “not to be intimidated by the courses. All of our students are successful in the end but they just have to be patient and work hard… We have very good placement rates so the reward is at the end.”

Deryugina says, “The nice thing about economics is that it really can be applied to almost any situation.” For Deryugina, one of the most difficult parts of teaching in the financial engineering program is, “Convincing students that this is going to be relevant to them... A lot of our students are either straight out of undergraduate or they’ve had just one or two years of work experience. Economic tools can be pretty abstract and seem divorced from reality.” 

Applying financial engineering to real world situations, Sreenivas says, “prices are based on people’s feelings,” and “Math is very useful because it tells you how this abstract quantity should be behaving.” In the market, he says, “The way you keep [money] stationary or growing is you have to take some risk. When you take risk, you should not completely expose yourself to such a huge risk… This is where we (financial engineers) come in.” 

Giving advice to students, Lane says, “Be open minded. Be enthusiastic and read about the environment in which you’re going into… This is a program in which you are going to apply the things [you learn]. If you’re interested in advancing theory, then you should go and do a research program.”

As a student, Huang says, “I highly recommend this program… It will provide you with many, many opportunities to find internships and fulltime work,” and “The courses here are very solid. They enhance your quantitative and analytical skills.”

In the financial market, Lane says, “The universe is changing all the time. That’s what makes it exciting.”

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