Financial Engineering

Financial Engineering is a recent research topic within the Institute for Operations Research. It combines traditional methods of operations research, such as linear programming, convex optimization etc., with concepts / models of financial mathematics. The focus is to determine the intimite relationships between (financial) risk and operational management options (decisions) in general. In this regard, financial and operations engineering combined yields to a fresh insight into "classical" OR-problems - and stimulates many new research questions, some of those are addressed below.

Research Focus

The main focus of the current research is to set up a stochastic framework for the description of Emission Trading, based on tools from stochastic analysis and financial mathematics. Here the key applications are first accurate risk management, when business is exposed to emission reduction targets, and secondly optimal design of environmental trading schemes.
Thereby we proceed from the realization that the carbon market follows an equilibrium which reflects the private economic interests of installations, concerned by emission regulations in a cap and trade framework. These are particularly companies in the power industry. Hence we can also rely on our experience from former research in power markets.

Former Research

IFOR played a fundamental role in setting up RiskLab and intends to transfer this financial thinking into engineering domains. The main focus of the former research was to apply coherent risk measures for portfolio optimization in electricity production scheduling and for the valuation of production flexibility, based on real options theory, in supply chains.

Intersection of both research topics is risk engineering and scheduling or dispatching production capacity. Those two parts were the core for each research topic and showed the strength of the group where financial mathematics and operations research was combined. Risk engineering mainly focused on applying and developing operational strategies for coherent risk measurement methodologies. One methodology that was adjusted for the two different industry groups was the concept of conditional Value-at-Risk (CVaR). Scheduling and dispatching production capacity was done with sophisticated operations research methods and modeling approaches in order to capture real-world properties. Finally these two aspects were investigated at the same time in order to achieve new methodologies and great improvements.

People

Head of Group

Prof. Hans-Jakob Lüthi

Members

• Max Fehr
• Michael Guarisco

Affiliated members

• Dr. Juri Hinz
• Dr. Marc Reimann
• Dr. Jörg Doege
• Dr. Philippe Schiltknecht
• Dr. Martina Wilhelm

How to get in touch with us?

You can either contact us electronically via e-mail or meet us in our office in Zurich.