Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Describe some of the motives and mistakes made by the financial engineers?
Expert Solution
Step 1
Motives of financial engineers are discussed as follows:
- Financial engineers use quantitative models to find the mispricing in the market and making Profit out of that model made.
- Engineers mix the use of finance as well as computer science and make a model that helps to mitigate the financial risk of the company.
- Engineers develop algorithms that are useful in derivatives trading and it can lead to huge profits because of the fast execution due to the algorithms made.
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