Financial engineering isn't exactly engineering. But it isn't exactly finance, either. It's a young field, based on a hybrid of engineering concepts and finance subject matter. Aptly enough, the field involves the application of engineering principles to the world of finance.
What's important to immediately understand, however, for anyone at all interested in getting a PhD in financial engineering, is that financial engineering is not considered engineering by most accrediting agencies. The Accreditation Board for Engineering and Technology does not provide accreditation for financial engineering PhD programs in the same way as it would provide accreditation for a PhD in electrical engineering, or a PhD in chemical engineering.
Differences between Financial Engineering PhD Programs and Other Engineering PhD Programs
Financial engineering is all about the creation of new kinds of financial instruments. "Financial instruments" is just a fancy way of referring to most forms of money used today. Cash is a financial instrument, as are stocks, bonds, loans, checks, and so on. Financial instruments, insofar as financial engineers deal with them, are primarily of the stocks, bonds, loans, and futures varieties, although they do deal with some others. "Cash equivalents" is what they are sometimes called.
The principles of engineering are applied within financial engineering in the respect that a new financial instrument would be crafted in a somewhat similar fashion to the creation of, say, a new machine, or a new building, or a new chemical.
Engineering is, fundamentally, the application of a certain kind of logic to a particular kind of problem. It's based around the notion of problem solving, in which a given problem is solved through intelligent use of underlying principles. Most engineering, though, uses scientific principles.
A holder of a PhD in mechanical engineering would apply physics-based principles in order to solve problems of a mechanical nature. A holder of a PhD in chemical engineering would use chemistry-based principles and rules, along with the principles of biology, to do the same in areas involving chemicals and chemical applications. In the same way, a holder of a PhD in financial engineering applies finance-based principles and rules to solve problems of a financial or economic nature.
Getting a PhD in financial engineering will make you of great value to a financial company, such as a banking company or a stock-trading company. But it will most certainly be of less use to an actual engineering firm.
Many financial engineering degrees are actually Master of Science degrees, as opposed to PhD degrees.
To PhD or Not To PhD
For someone hoping to get a financial engineering degree in order to work in a position in the appropriate firm, a financial engineering master's degree may be the best option, simply because it will likely be far less costly in terms of both time and monetary expenditures, and it might very well suffice in the same capacity as a PhD in financial engineering.
A PhD in financial engineering is likely to be most important for those individuals who plan on either teaching with the degree, or who plan on focusing on particularly complicated or in-depth issues related to the subject matter. It may not be as important for those who simply want to apply the ideas of financial engineering pragmatically.
Investigating this matter is an important first step to determining whether or not a PhD in financial engineering is right for you.
Prerequisites for a PhD in Financial Engineering
To earn a PhD in financial engineering, you will often actually first need a Master of Science in financial engineering. At the very least, you will likely need a bachelor's degree.
Taking classes in economics and business is advisable. Taking classes in science and engineering, so as to learn some of those principles and styles of thought, is also advisable, though likely less necessary.