The definition of financial engineering is the “use of mathematical techniques to solve financial problems.” Financial engineering draws on the skills from fields of computer science, statistics, economics, and applied mathematics in order to solve financial problems and to create new financial products.
Financial engineering is being used to create new investment tools and products for investors and companies. In fact, according to Investopedia, financial engineering can be used to create various tools such as “new methods of investment analysis, new debt offerings, new investments, new trading strategies, new financial models, etc.” In addition financial engineers run multiple risk tests in order to predict how a new strategy would work on the market in order to see if it would be beneficial and profitable in the long run. This way, every strategy can be tested to see which one would do the best on the current state of the market.
There are two main fields of financial engineering that are being studied today. The first is derivatives trading. The main focus in this field is to create profitable new strategies that companies can take advantage of, in addition to using stochastics, simulations and analytics to design and implement new financial processes to solve problems in finance. The second field is speculation. This field specializes in creating speculative strategies for the markets, in which the potential losses are high, but if the strategy works, the potential gains would be high as well. These two strategies are the most used in Financial Engineering.
Source: https://www.investopedia.com/terms/f/financialengineering.asp