Financial Engineers Offer Perspective On Financial Crisis

October 29, 2008

As the financial crisis continues to make headlines and thin pocketbooks, many people are asking: How could this happen?

To provide some perspective, the McCormick School of Engineering Dean's Seminar Series will offer a panel discussion, titled, “Financial Engineering: Lessons From The Current Financial Crisis,” at 5 p.m. on Thursday, Nov. 6 in Lecture Room 4 at the Technological Institute on Northwestern University’s Evanston campus.

The panel will include Vadim Linetsky, professor of industrial engineering and management sciences, and Jeremy Staum, associate professor of industrial engineering and management sciences — two experts in financial engineering, an interdisciplinary field that integrates methods and knowledge from mathematics, statistics, economics, operations research, and computer science.

Financial engineers develop quantitative tools that help banks, manufacturing and service firms, and public institutions make disciplined financial decisions in the face of risk and uncertainty. Financial engineers also devise computational algorithms to implement these tools and calibrate them to financial market data.

The panel will also include Robert McDonald, Erwin P. Nemmers Professor of Finance at the Kellogg School of Management. McDonald researches corporate finance and derivatives and is currently studying capital structure and institutional structure of securities markets.

The panelists will speak, then take questions from the audience. The panel will be moderated by Barry Nelson, chair of the industrial engineering and management sciences department.

Linetsky has developed stochastic models for equity, foreign exchange, interest rate, and credit derivatives. He has devised analytical and computational methods for derivative security pricing based on spectral expansions, integral transforms, and numerical solution of partial differential equations. He is currently working on mathematical modeling of credit risk in various settings, including corporate bonds and associated credit derivatives, asset-backed loans and leases, and real estate mortgages.

Jeremy Staum works on simulation algorithms for derivatives pricing and risk management. He also researches pricing derivative securities when the resulting risks can not be thoroughly hedged.