I have this very vague idea that I want to put out here to be sure I won’t forget looking into it. I heard the term “financial engineering” in one of Ben Felix’s videos. I’ll try to find it.

Traditional engineering deals a lot with risk and uncertainty. They know how big their errors can be under given circumstances and they have formula to calculate how much their input must change in order to produce just the right amount of error. They can virtually “guarantee” a certain level of precision even in the face of uncertainty.

I wonder if there are ways to do this in the financial world and to what extent. Concrete examples:

  1. I want a portfolio that is guaranteed not to fall more than 1%
  2. I want a portfolio that is guaranteed to grow between 5% and 7% a year with a varance of exactly x.

To be continued