10 years of financial engineering in NYC
By Geoffrey Giller
The word “engineering,” for most people, conjures up visions of physical assemblages: gears turning, metal structures designed to distribute heavy loads in just the right way, or circuit boards. And if you Google “engineering,” there’s a preponderance of images of people wearing yellow hardhats, many poring over blueprints or other schematics. But while mechanical, structural, or electrical engineering may be more commonly known, there’s another type of engineering out there: financial engineering. Rather than dealing with physical structures or concepts, financial engineers deal mostly with computer code, with the goal of creating algorithms that help investors and banks deal with big data, predict the ups and downs of stock markets, or correctly price securities. And, yes: Cornell does indeed have a financial engineering program.
Cornell Financial Engineering Manhattan, or CFEM, was first created ten years ago as part of the School of Operations Research and Information Engineering. But financial engineering at Cornell started the previous decade, in 1995, as a two-semester concentration as part of a master’s degree in engineering (in fact, the term “financial engineering” was coined on the Cornell campus). Then, in 2007, says program director and professor of practice Victoria Averbukh, the faculty at the school decided that the program should be expanded to three semesters. This allowed for two things: the inclusion of a summer within the program, allowing students to have a summer internship; and, more radically, it allowed students to spend that third semester down in New York City, working closely with the types of people and companies that they would expect to work for and with after graduation. “We needed to improve what we offered to financial engineering students,” says Averbukh. Ithaca, for all its charm and natural beauty, isn’t exactly a hub of financial activity. It’s simply too far from the place where most financial engineering graduates would, in all likelihood, end up working: Manhattan. And while learning theoretical concepts in the classroom was a necessary part of students’ education, Averbukh says, it was also important to “forget the textbooks, forget the ivory tower, and see how practitioners actually do things.”
One of the key components of the semester in Manhattan is a project that tackles a real-world problem that financial companies are trying to solve. All students in the program work with a company like American Express, Merrill Lynch, or UBS. The students get the experience of working on something that’s not dreamed up by a professor, but is a genuine question that major financial players are trying to answer, with all of the roadblocks and practical difficulties that entails. And the companies get smart, motivated minds working for them for free. The solutions are often put into practice by the companies, says Sasha Stoikov, a senior research associate and instructor with the CFEM program. What’s more, companies often hire the students that worked on the project for them. “At the beginning, we were almost begging people to give us a project,” says Stoikov. “It felt like we were asking for charity.” Now, though, “we are in a position where we are almost picky,” he says, getting to choose from an array of projects and companies that Stoikov and his colleagues feel will provide the best educational experience for the students. And since most companies keep coming back year after year, he says, they clearly find value in the arrangement too.
Sergey Protchenko, a research analyst at the investment management firm Invesco, says they have had good experiences so far with CFEM students and graduates. One of their current junior analysts was hired last year, after interning for the company as a student, he says, and they just extended an internship offer to a student for this coming summer. “We work with a lot of data,” Protchenko says. “You need to be able to parse it, you need to be able to construct something out of it.” The students coming out of the CFEM program, he says, are “very proficient” with both the coding skills and the financial fundamentals necessary for that kind of work. That includes the ability to code in R and Python, and dealing with both structured and unstructured datasets.
The CFEM program has changed significantly over the past decade, in step with the financial landscape. “We have continued to evolve and adjust to the changing landscape of the financial industry,” Averbukh said at an information session last year. One major change: big data. In recent years, there has been an optional fourth semester that’s focused primarily on working with huge datasets, says Averbukh. But now, they’ve decided to incorporate big data within the three-semester framework. “We probably should be teaching these concepts earlier than in their fourth semester,” Averbukh says she and her colleagues decided, rather than asking them to pay for another semester. “That’s how important it’s becoming.” She notes that increasingly, the projects that companies bring to CFEM for students to work on involve big data.
The program also adapts to the financial industry’s current demands almost as an inherent consequence of its design. The projects that students work on reflect the changing needs of companies. Additionally, many of the courses at CFEM are taught by working practitioners. “Whatever’s hot in the industry is what’s taught,” says Shane Henderson, director of the School of Operations Research and Information Engineering.
Erica Zhang, who graduated from the CFEM program in 2015, now works at BNP Paribas on an equity derivatives strategy team. She appreciated being on the Cornell campus for a year, in a “quiet environment” where you can “do your research and accumulate knowledge.” Then, coming to New York City and learning from practitioners gave her “a great opportunity to network, and also learn what’s really going in on in the market.” The semester in the city, she says, served as a bridge, connecting the theoretical underpinnings she learned in Ithaca to the hard, specific skills she uses now. It’s her impression that the CFEM program has started looking for students with a diverse range of backgrounds: not just those with engineering or math, but also those who studied business or economics, too.
For Ivy Wu, who will go down to Manhattan in the fall, the choice of the financial engineering program was an easy one: she did her undergrad at Cornell too, so she got firsthand exposure to the program before applying. The program’s combination of a business aspect with technical skills appealed to her, she says. And she also noted that the program has strong career support; student career manager Liz Drummond’s job is dedicated to helping students find jobs and internship placements.
One of the other changes afoot with the CFEM program is its new location. The Cornell Tech Campus officially opened in September 2017 on Roosevelt Island, in the middle of the East River (which divides Manhattan from Queens and Brooklyn). That campus now houses the CFEM program. Stoikov is excited about the possibilities that this entails. “It’s sort of like a bunch of brilliant minds were put in a building, and now we’re waiting for something to happen,” he says. “Initially, people were all doing their thing,” he adds. But now, “we’re starting to go to each other’s seminars more and more... we’re starting to make connections.” Stoikov works with cryptocurrencies, and has found others interested in that topic outside of CFEM at the new campus. He thinks that such cross-pollination will benefit the students, and possibly yield new and exciting ideas and discoveries in financial engineering or beyond. And such collaborations may even extend beyond Roosevelt Island: Yudong Yang, who graduated last year and now works for JP Morgan as a quantitative research associate, says he collaborated with two Columbia University students in Citadel’s Data Open “datathon.”
Ultimately, says Henderson, “the greatest strength of CFEM is our people.” He praises Averbukh for her “broad knowledge of the financial engineering industry,” Stoikov for being “a versatile researcher and teacher who is greatly admired by his students,” and Drummond for her “impressive track record in helping with student placement.” He adds: “Together, they are quite the team!”