A. Bagchi Department of Mathematical Sciences Tel. Moreover, within the service sector the most dramatic growth during the last decades has, taken place in the financial services. Information and communication technology played a central role in this process in two ways. First, the financial markets cannot function without the transaction processing systems that enable the placing, execution and completion of the volume of orders today. These developments, coupled with the research activities following the path-breaking results of Black and Scholes, resulted in the integration of mathematics, financial economics and information technology into the new discipline of Financial Engineering.
Risk analysis is at the core of financial engineering.
It originated in insurance, where one has to work with uncertainties over long horizons. In finance, a major issue is the management of risks. The first step is to measure the risks, the three important ones being the market risk, the credit risk and the operational risk. Once these risks are quantified, various financial products can be used to minimize these risks. Derivatives on stocks, interest rates and credit risks are constantly devised for this purpose.