Financial Engineering and Engineering of Financial Regulation

As observed at least in last two decades, financial engineering has not only changed the way of doing business in finance world, but also has changed daily life of average citizens in the leading economies. Structured products named as weapons of mass destruction in some post-crisis comments. But it is fair to say that few people could understand the nature and risks of these instruments before the crisis. By using literature review and case study analysis, the author analyses how financial regulation and supervision have failed to understand/manage the financial engineering products during/before the global financial crisis. In this context, we discuss the measures to enhance good regulatory governance in engineered products. We conclude however engineered products have important benefits to the global economy, regulatory/supervisory structure should be improved for better firm/system wide risk management. Secondly, there are four components to improve prudential regulatory/supervisory framework of structured products. Those are, timely/effectively action to the balance sheet problems, to increase the effectiveness of the risk management, to improve independence and quality of prudential regulation/supervision and to increase accountability of supervisors.Financial engineering, structured finance, financial crisis, risk management, regulation

Regulating Complexity in Financial Markets

As the financial crisis has tragically illustrated, the complexities of modern financial markets and investment securities can trigger systemic market failures. Addressing these complexities, this Article maintains, is perhaps the greatest financial-market challenge of the future. The Article first examines and explains the nature of these complexities. It then analyzes the regulatory and other steps that should be considered to reduce the potential for failure. Because complex financial markets resemble complex engineering systems, and failures in those markets have characteristics of failures in those systems, the Article‟s analysis draws on chaos theory and other approaches used to analyze complex engineering systems

Muon spin spectroscopy: magnetism, soft matter and the bridge between the two

LS would like to acknowledge financial support from the Swiss National Science Foundation, grant numbers PBFRP2-138632 and PBFRP2-142820. AD would like to acknowledge financial support from the UK Engineering and Physical Sciences Research Council, grant number EP/G054568/1, the European Union Seventh Framework Programme project NMP3-SL- 2011-263104 ‘HINTS’ and the European Research Council project ‘Muon Spin Spectroscopy of Excited States (MuSES)’ proposal number 307593LS would like to acknowledge financial support from the Swiss National Science Foundation, grant numbers PBFRP2-138632 and PBFRP2-142820. AD would like to acknowledge financial support from the UK Engineering and Physical Sciences Research Council, grant number EP/G054568/1, the European Union Seventh Framework Programme project NMP3-SL- 2011-263104 ‘HINTS’ and the European Research Council project ‘Muon Spin Spectroscopy of Excited States (MuSES)’ proposal number 307593LS would like to acknowledge financial support from the Swiss National Science Foundation, grant numbers PBFRP2-138632 and PBFRP2-142820. AD would like to acknowledge financial support from the UK Engineering and Physical Sciences Research Council, grant number EP/G054568/1, the European Union Seventh Framework Programme project NMP3-SL- 2011-263104 ‘HINTS’ and the European Research Council project ‘Muon Spin Spectroscopy of Excited States (MuSES)’ proposal number 30759

Financial Engineering and Rationality: Experimental Evidence Based on the Monty Hall Problem

Financial engineering often involves redefining existing financial assets to create new financial products. This paper investigates whether financial engineering can alter the environment so that irrational agents can quickly learn to be rational. The specific environment we investigate is based on the Monty Hall problem, a well-studied choice anomaly. Our results show that, by the end of the experiment, the majority of subjects understand the Monty Hall anomaly. Average valuation of the experimental asset is very close to the expected value based on the true probabilities.experiment, behavioral finance

Economics need a scientific revolution

I argue that the current financial crisis highlights the crucial need of a change of mindset in economics and financial engineering, that should move away from dogmatic axioms and focus more on data, orders of magnitudes, and plausible, albeit non rigorous, arguments.Comment: An edited version of this essay appeared in Natur

Towards an integrated perspective on fleet asset management: engineering and governance considerations

The traditional engineering perspective on asset management concentrates on the operational performance the assets. This perspective aims at managing assets through their life-cycle, from technical specification, to acquisition, operation including maintenance, and disposal. However, the engineering perspective often takes for granted organizational-level factors. For example, a focus on performance at the asset level may lead to ignore performance measures at the business unit level. The governance perspective on asset management usually concentrates on organizational factors, and measures performance in financial terms. In doing so, the governance perspective tends to ignore the engineering considerations required for optimal asset performance. These two perspectives often take each other for granted. However experience demonstrates that an exclusive focus on one or the other may lead to sub-optimal performance. For example, the two perspectives have different time frames: engineering considers the long term asset life-cycle whereas the organizational time frame is based on a yearly financial calendar. Asset fleets provide a relevant and important context to investigate the interaction between engineering and governance views on asset management as fleets have distributed system characteristics. In this project we investigate how engineering and governance perspectives can be reconciled and integrated to enable optimal asset and organizational performance in the context of asset fleets

Financialization and Its Entrepreneurial Consequences

Examines the financial sector's rise in relative economic importance and its impact on science and engineering employment and entrepreneurship. Explores new firm formation and performance and capital allocation under a scenario with a smaller sector

2-D ELASTODYNAMIC PROBLEM FOR AN INTERFACE CRACK UNDER AN OBLIQUE HARMONIC LOADING

Acknowledgements The authors would like to acknowledge major financial support received from the College of the Physical Sciences of the University of Aberdeen and the Engineering and Physical Sciences Research Council.Postprin

Leverhulme Lecture: Regulating Complexity in Financial Markets

Lecture given November 9, 2010, the second of three delivered by Prof. Schwarcz as Leverhulme Visiting Professor of Law, Oxford University. Complexity is the greatest challenge to 21st Century financial regulation, having the potential to impair markets and investments in several interrelated ways. Furthermore, complexity can cause failures that individual market participants cannot, or will not have incentive to, remedy. These failures are driven by information uncertainty, misalignment of interests and incentives among market participants, and nonlinear feedback and tight coupling that result in sudden unexpected market changes. These are the same types of failures that engineers have long faced when working with complex engineering systems. The lecture uses engineering solutions such as chaos theory to examine how financial regulation should be structured to correct those failures