查看完整版本: Financial Engineering & Actuarial Science

Financial Engineering & Actuarial Science

I've seen post here asking questions about CFA vs FE:

http://www31.discuss.com.hk/viewthread.php?tid=8802555&extra=page%3D1

So just curious what are differences between FE and AS. I think AS applies more in insurance industry while FE more in investment bank. Is this correct?
In ibanks, financial engineers are those who used to work on algo trading, model for arbitrage trading, portfolio risk calculation and liquity analysis. Am I correc that quan guys in insurance industry, they called themselves major in actuarial science?


Wiki's definition:

Source: [url]http://en.wikipedia.org/wiki/Actuarial_science[/url]

[b]Actuarial science[/b] is the discipline that applies [url=http://en.wikipedia.org/wiki/Mathematics]mathematical[/url] and [url=http://en.wikipedia.org/wiki/Statistics]statistical[/url] methods to [url=http://en.wikipedia.org/wiki/Risk_assessment]assess risk[/url] in the [url=http://en.wikipedia.org/wiki/Insurance]insurance[/url] and [url=http://en.wikipedia.org/wiki/Finance]finance[/url] industries. [url=http://en.wikipedia.org/wiki/Actuary]Actuaries[/url] are professionals who are qualified in this field through examinations and experience.
Actuarial science includes a number of interrelating subjects, including [url=http://en.wikipedia.org/wiki/Probability]probability[/url] and [url=http://en.wikipedia.org/wiki/Statistics]statistics[/url], [url=http://en.wikipedia.org/wiki/Finance]finance[/url], and [url=http://en.wikipedia.org/wiki/Economics]economics[/url].Historically, actuarial science used deterministic models in theconstruction of tables and premiums. The science has gone throughrevolutionary changes during the last 30 years due to the proliferationof high speed computers and the synergy of [url=http://en.wikipedia.org/wiki/Stochastic]stochastic[/url] actuarial models with modern financial theory [url=http://en.wikipedia.org/wiki/Actuarial_science#endnote_Freesnone](Frees 1990)[/url].
Many universities have undergraduate and graduate degree programs in actuarial science. In 2002, a [url=http://en.wikipedia.org/wiki/Wall_Street_Journal]Wall Street Journal[/url] survey on the best jobs in the United States listed “actuary” as the second best job [url=http://en.wikipedia.org/wiki/Actuarial_science#endnote_Leenone](Lee 2002)[/url].

Source: [url]http://en.wikipedia.org/wiki/Computational_finance[/url]

[b]Computational finance[/b] or [b]financial engineering[/b] is a cross-disciplinary field which relies on [url=http://en.wikipedia.org/wiki/Mathematical_finance]mathematical finance[/url], [url=http://en.wikipedia.org/wiki/Numerical_analysis]numerical methods[/url] and [url=http://en.wikipedia.org/wiki/Computer_simulation]computer simulations[/url] to make [url=http://en.wikipedia.org/wiki/Trader_%28finance%29]trading[/url], [url=http://en.wikipedia.org/wiki/Hedge_%28finance%29]hedging[/url] and [url=http://en.wikipedia.org/wiki/Investment]investment[/url] decisions, as well as facilitating the [url=http://en.wikipedia.org/wiki/Risk_management]risk management[/url] of those decisions. Utilising various methods, practitioners of computational finance aim to precisely determine the [url=http://en.wikipedia.org/wiki/Financial_risk]financial risk[/url] that certain [url=http://en.wikipedia.org/wiki/Financial_instrument]financial instruments[/url] create.

Financial instruments: pricing under the risk neutral world <--> [color=Red]change of measure is involved[/color] as you can short (replicate) the products in the market (arbitrage opportunity exists and needs to be eliminated during pricing)
Pure insurance instruments (for instance: property insurance): pricing under the real world <--> [color=Red]change of measure is not involved [/color]as you can't short (replicate) the products in the market (arbitrage opportunity never exists)

In general, financial instruments are more complicated than the insurance instruments because [color=Red][color=Red]the theory of change of measure[/color][/color][color=Red] is involved[/color].

Welcome to discuss~~~~

[[i] 本帖最後由 Black-Scholes 於 2009-1-1 04:37 PM 編輯 [/i]]

Hi Black-scholes, where is merton ;) Your screen name here brings me up a lot of college educational memory!

First, in term of math knowledge, FE and AS are as difficult, but theycould use different approaches. FE in "financial instrument" you'vementioned below, deals with more micro-analysis; while AS in pureinsurance instrument deals more macro-analysis(?).
Pick a example, common methodology used in arbitrage trading / PairsTrading, in three ways: statistical, relative fundamental and riskarbitrages. All methods need supporting data such ashistorical/correlation for stat, earning data for fund and derivedfactors for risk. In term of data gathering, financial instruction ismuch easier as they are available in most vendors, therefore, financialengineers or arbi traders can apply into models. Most importantly, itis quantified and can be shown to clients (company's CFOs) very veryvery easily and result to sell/invest. Does these analysis help? Iwould say my mum can manage her portfolio as well as me in a long run.In fact, I do think fancy analysis sometimes is a joke.

About issuance products, I am not too familiar with, but I 'think'issuance company can sell their client contracts in a form of somethinglike ABS/MBS which are commonly traded within inter-bank market. In thecase, SA analyst will have consider arbitrage opportunities on top ofthe fixed assets evaluation - inflation, depreciation blah blah? On theother hand, data collection is more difficult than pure financialproducts, how can a firm evaluates the first China spaceship ^_^ maybenot a good example, that means not all theoretical models can beapplied while financial analysis models are quite standard – data isthere, just plug in. In addition, lack of data makes it more difficultfor the tail analysis (ignore or not).

Anyway, it seems this thread should be added to academic finance section ;)

[quote]原帖由 [i]Black-Scholes[/i] 於 2009-1-1 04:25 PM 發表 [url=http://www31.discuss.com.hk/redirect.php?goto=findpost&pid=185929906&ptid=8811613][img]http://www31.discuss.com.hk/images/common/back.gif[/img][/url]
Financial instruments: pricing under the risk neutral world  change of measure is involved as you can short (replicate) the products in the market (arbitrage opportunity exists and needs to be elimina ... [/quote]

[quote]原帖由 [i]d70fans[/i] 於 2009-1-1 07:04 PM 發表 [url=http://www.discuss.com.hk/redirect.php?goto=findpost&pid=185953557&ptid=8811613][img]http://www.discuss.com.hk/images/common/back.gif[/img][/url]
Hi Black-scholes, where is merton ;) Your screen name here brings me up a lot of college educational memory!

First, in term of math knowledge, FE and AS are as difficult, but theycould use differen ... [/quote]


我講緊Pricing, 你講緊Trading~~~;P;P

我諗FM同AS最初都只係用係Pricing度, 而隨住複雜的衍生工具誔生, D人先將呢們技術用係衍生工具既風險管理同交易度~~~

我認為精算理論係從統計學的law of large number出發而發展出來, 金融數學理論則從概率學的change of measure出發而發展出來, 本質並不相同~~~

你所講既MBS/ABS/CDO嚴格上來講係金融結構性產品而唔係保險產品, 只涉及保險業務既保險公司係唔會生產呢類產品, 但會為呢類產品提供保險, 而風險管理既技術由此至終都係由精算技術出發, 呢點同金融產品設計同定價所用既金融數學理論好唔同!~~~

設計金融產品同設計保險產品最大唔同係……如果你用law of large number去為金融產品定價, 呢個價同你用其他股票債券複製出來既相同產品既價格會有出入, 而透過投資者高賣低買, 會令輪商產生損失。

而保險產品就冇呢個問題, 原因係:

1. 你根本唔可以複製保險產品
2. 即使你可以複製保險產品, 你都唔可以拋空保險產品, 從而賺取一分錢既利潤

所以係保險市場只有一個合理既定價方法, 呢個定價方法係透過大數定律(精算理論)同保險公司對風險的承受能力共同決定出來~~~:P:P

[[i] 本帖最後由 Black-Scholes 於 2009-1-1 11:38 PM 編輯 [/i]]

See how Paul Wilmott says

http://www.wilmott.com/blogs/paul/index.cfm/2008/11/17/Actuaries-Versus-Quants

ching, I did not go school for 10 years la, only know what I am doing now ar ...

By the way, I really get educated or re-educated maybe ;)


[quote]原帖由 [i]Black-Scholes[/i] 於 2009-1-1 09:29 PM 發表 [url=http://www31.discuss.com.hk/redirect.php?goto=findpost&pid=185971055&ptid=8811613][img]http://www31.discuss.com.hk/images/common/back.gif[/img][/url]



[color=Red]我講緊Pricing, 你講緊Trading[/color]~~~;P;P

我諗FM同AS最初都只係用係Pricing度, 而隨住複雜的衍生工具誔生, D人先將呢們技術用係衍生工具既風險管理同交易度~~~

我認為精算理論係從統計學的law of lar ... [/quote]

[[i] 本帖最後由 d70fans 於 2009-1-1 11:30 PM 編輯 [/i]]

[quote]原帖由 [i]d70fans[/i] 於 2009-1-1 11:26 PM 發表 [url=http://www.discuss.com.hk/redirect.php?goto=findpost&pid=185988712&ptid=8811613][img]http://www.discuss.com.hk/images/common/back.gif[/img][/url]
ching, I did not go school for 10 years la, only know what I am doing now ar ...

By the way, I really get educated or re-educated maybe ;)


[/quote]

自從讀完個MFE之後, 我都有年幾未掂返果D野, 依家返工接觸既都係AS既野~~:loveliness::loveliness:

Haha my background is FE, after graduation, just do trading, so 三句不離本行. haha ;) The essay above is pretty good.

By the way, you should be the one knows both side now ;)

[quote]原帖由 [i]Black-Scholes[/i] 於 2009-1-1 11:42 PM 發表 [url=http://www31.discuss.com.hk/redirect.php?goto=findpost&pid=185991092&ptid=8811613][img]http://www31.discuss.com.hk/images/common/back.gif[/img][/url]


自從讀完個MFE之後, 我都有年幾未掂返果D野, 依家返工接觸既都係AS既野~~:loveliness::loveliness: [/quote]

[[i] 本帖最後由 d70fans 於 2009-1-1 11:58 PM 編輯 [/i]]

[quote]原帖由 [i]d70fans[/i] 於 2009-1-1 11:53 PM 發表 [url=http://www.discuss.com.hk/redirect.php?goto=findpost&pid=185992819&ptid=8811613][img]http://www.discuss.com.hk/images/common/back.gif[/img][/url]
Haha my background is FE, after graduation, just do trading, so 三句不離本行. haha ;) The essay above is pretty good.

By the way, you should be the one knows both side now ;)

[/quote]

The fact is i did 4 exams upto time-series & life con thing but do not understand a SHXT abt the thing in FE and never got considered for a FE job. But some Ching of mine who are now FSA did get a FE-related job. simply put imo is AS is not 'quant' enough.