UC Berkeley’s One-Year MFE Taught by Financial Economists, Features Innovative Internship

By Patricia Vowinkel

Financial engineering degrees are offered by a number of universities these days. But at many of those schools, the degree is offered through the computer science or mathematics departments. That’s not the case at UC Berkeley, however.

What sets the financial engineering program at Berkeley apart from many of the other financial engineering programs is that it is offered by the Haas School of Business. That’s a key difference that gives students a thorough grounding in not just the math involved in financial engineering, but the economics and real-world applications as well.

“You’ll often find MFE programs offered, strangely enough, not by the business school, but by some other department like the computer science department,” says Mark Rubinstein, the Paul Stephens Professor of Applied Investment Analysis at the Haas School at Berkeley.

“Our push was not just to teach students how to derive formulas and do computer programming and implement them – which is obviously important in financial engineering,” Rubinstein says. “We wanted to give our students a sort of deeper understanding of the situations under which using various tools would be appropriate.”

The one-year program at Berkeley features an innovative internship program that gives students a chance to hone their skills before leaving the school and heading out into the job market. The faculty, meanwhile, is renowned for its expertise and practical experience in the creation of financial instruments and implementation of innovative financial strategies.

The results speak volumes. The MFE program at Berkeley boasts a stellar placement record with 93 percent of the 2004-2005 graduates who sought employment receiving a full-time offer within six months of graduation.

In the first ranking of financial engineering programs, Global Derivatives ranked the Haas MFE program #1 and the program has remained consistently at the top of the rankings ever since.

“It was one of the few business schools which offers the course in financial engineering,” says Swaroop Yalla, one of the students in the 2006-2007 MFE program at Berkeley. Other schools had excellent financial engineering programs, he says, but “their focus seemed a little more theoretical and that was something I definitely knew is that I wanted to go into the business side of things,” he says. “So the fact that the Haas School of Business was running this program made a big difference for me.”

The MFE Program and Faculty

When Berkeley launched the MFE program in March 2001, it was designed to offer a mix of both the mathematical and the practical.

“The main difference we would emphasize is that our program is really being taught by financial economists, by and large, not by mathematicians, not by people who got interested in financial economics, but aren’t really, by training, financial economists,” Rubinstein says.

Faculty includes finance professors from throughout the UC system. In addition, the program draws on the expertise of five adjunct professors who are distinguished practitioners at leading companies in this field.

The Haas MFE program also frequently invites leading thinkers from the world of financial engineering into the classroom. Past speakers have included Nobel Laureate Robert Merton and Nobel Prize Winner Myron Scholes.

The Curriculum

The curriculum reflects the program’s vision to emphasize the financial economics over just the mathematics and also builds on the strengths of its faculty. The program offers courses that focus on case studies, for instance, which give students a better grasp of the kinds of strategies that have succeeded and those that have failed out in the real world.

It’s very important, Rubinstein says, for students to understand the assumptions that lie behind the models and understand how the real world really works.

“We wanted our students to be able to think about things from a more conceptual point of view,” Rubinstein says. “I think one way of saying it is we were trying to stress the economics in financial economics over the sort of pure engineering. It’s really the economics part of financial engineering that we thought we had a comparative advantage because of our faculty,” he says.

In the first part of the year, from March through October, the students begin with courses that focus on the skills they will need when they go out on their internship. Courses include the fundamentals of financial economics, stochastic calculus and empirical methods in finance. Students also get courses in credit risk and fixed income markets before heading out on the internship.

About seven months into the program the students have the opportunity to go out on a 2-1/2-month internship and put their knowledge to work. “It’s extremely helpful for students to go out and midway through the program start using the things they’ve been learning,” Rubinstein says. “When they come back they are in better shape to take the last term,” he says.

After they return from their internship experience they take courses that expand on the knowledge that they have gained while on the job, Rubinstein says. Courses include a class in financial innovation and designing securities for corporate financing.

The curriculum is also constantly evolving, Rubinstein says. “We change the curriculum around all the time around the edges,” he says. For instance, the program now offers a course on behavioral science and is expanding its corporate finance offerings. “One area we’ve tried to develop further, against the grain, is corporate finance.”

Most of the people who come to financial engineering programs end up working for investment banks or as portfolio managers, he says. The corporate finance side, he says, has not been as sophisticated as the investment banking side of the business world.

“But it’s getting more sophisticated and as it gets more sophisticated, there’s going to be a greater demand for people who are taught in a program like an MFE program where you can assume people have some reasonable quantitative background,” he says. “The problem with an MBA student is you can’t assume they have the quantitative background.”

Student Views

Students say they chose the MFE program at Berkeley precisely because of the program’s connection with the prestigious Haas School, but also because of the program’s internship and because of the fact that the program lasts only one year.

It was when she was at her job at the Federal Reserve in San Francisco that Irene Wang says she first learned about financial engineering degrees. “I wasn’t extremely enthusiastic about doing a Ph.D. or an MBA, so I was excited to hear that there was something in between,” Wang says. “I liked how it was much more quantitative than a MBA, but focused more on real-life applications than a Ph.D.”

Although she had looked at other top programs, such as the ones at Carnegie Mellon and Columbia, the one that stood out was the MFE program at Berkeley. “What made it stand out was the fact that it was part of the Haas School, one of the best business schools in the country, and that it was only one year,” she says. “I felt that since the program is in the business school, it had certain advantages over programs that were part of math or engineering departments, such as more contacts with potential employers.”

“In addition, the faculty members were extremely impressive and I was hoping to stay on the West Coast,” she says. Yalla was also drawn by the reputation of the Haas School and the fact that it was just a one-year program.

“Because I already have a graduate degree, I didn’t want to spend another two years for my MBA,” Yalla says. “So the fact that this was a one-year program with an internship period was a very big plus for me.”

Yalla says he also looked at programs offered by other schools, but they tended to be very mathematical whereas the courses at the Berkeley program are more oriented toward case studies and the successes and failures in financial innovation.

“We are not just learning the models, but we are also learning about where is the innovation going on and what can be the next generation, for example,” Yalla says.

The Cost/Benefit

The program has a lot to offer, but it comes at a price. In 2004-2005, the tuition and fees totaled about $40,000. Even though Berkeley is a public university, the program has to be self-funding and therefore does not offer much in the way of scholarships. That said, the payoff is pretty good.

The average starting compensation including bonus for students graduating in 2006 was $150,000.

Recruiters include companies such as Allianz, AIG, Barclays Global Investors, BARRA Inc., Bear Stearns, BlackRock Financial, Goldman Sachs, JP Morgan, Lehman Brothers, Morgan Stanley, PIMCO and Wachovia Securities.

Students currently enrolled in the program say the program has lived up to their expectations. “I am quite pleased,” Yalla says, citing the opportunities the program provides for networking with alumni and other people in the industry. “Because it’s a small program and a young program, the people who graduated are giving back a lot. Also, Berkeley does a very good job of marketing its students to the employers,” Yalla says, noting that the school posts profiles of its students on its website.

Wang says she’s also happy with the program. “Since the program is only a year long, it is very fast-paced and we have to learn very quickly. It is sometimes difficult to digest all the information, but I have found that it has prepared us very well for our interviews and internships.” 

“Overall, it gives you the quantitative tools that you need to succeed in the finance industry and also gives you some industry insight that you also need to excel,” she says. “I have found that the program has more than met my expectations and am extremely happy with it.”

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