Financial engineers don’t wear hard hats, even though some of the stuff they figure out is so complicated it might at first feel like a punch in the head. Don’t worry. A Dictionary of Finance explains how financial engineers work, in terms that anyone can understand

Financial engineering is the application of mathematics to financial questions, typically using computer models

If we asked you to calculate the price of a financial option, you’d probably say you’ll get back to us in seven years after you’ve earned your PhD in system theory and time-series analysis. But we didn’t want to wait that long, so we got an expert onto the podcast who already has that rather impressive qualification.

Thomas Ribarits, who heads the European Investment Bank’s financial engineering division, explains what financial engineers do. It’s a complicated subject, though Thomas boils down option pricing to a level where he says someone with high school maths could understand it. In fact, he says, it’s all about common sense.

We find out what a quantitative analyst does (also known as a “rocket scientist”) and dig deep into the famous Black-Scholes Model. Thomas also solves a little dispute over the price of coffee between Allar and Matt on A Dictionary of Finance.

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