Financial engineering is the application of engineering methods and the engineer's problem-solving skills to important problems in finance. This interdisciplinary field integrates methods and knowledge from mathematics, statistics, economics, operations research, and computer science. Financial engineers develop mathematical and statistical tools to manage financial risk, optimize investment portfolios, and design and value financial products. Financial engineers also devise computational algorithms to implement the tools and calibrate them to financial market data.

McCormick faculty members' current research in financial engineering is focused in three major areas:

Aspects of financial risk management include measuring the risk of a financial transaction (transaction risk) or of a large investment portfolio (portfolio risk), an entire financial institution (enterprise risk), or a network of financial institutions (systemic risk), exploring ways to reduce risk, and determining an adequate capital reserve against potential losses. Portfolio optimization finds an investment strategy that best fits a decision-maker's objectives and preferences. Derivative securities, such as stock options and commodities futures, have payoffs that are related to the value of an underlying asset, such as a stock or a commodity. Financial engineering helps to find the relationship between the derivative security's price and that of the underlying asset.

Researchers in financial engineering at McCormick have their homes in the departments of:

The McCormick School offers financial engineering courses at the undergraduate and graduate levels to train financial engineers and to allow students to explore the financial applications of multiple disciplines.