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This week’s business section of the Princeton Packet features an interesting cover story on the influential yet understated Bendheim Center for Finance at Princeton.

“Less than a decade old, and despite its small size and low profile, the Bendheim Center has already established a global reputation in the highly technical, even arcane world, of financial economics research,” writes Packet business editor Lauren Otis.

Quite a few faculty members in Princeton’s Department of Operations Research and Financial Engineering have close ties with the Bendheim Center. Among them is Rene Carmona, Paul Wythes Professor of Engineering and Finance and the Bendheim Center’s director of graduate studies.

Carmona tells the Packet that, although many other universities here and in Europe have tried to set up their own centers for financial research modeled after Princeton’s, the Bendheim Center remains unique. According to Carmona, this is both because the University prizes interdisciplinary research and because of Princeton’s relatively intimate scale.

The article offers other fascinating insights. For example, did you know that it was Federal Reserve Board Chairman Ben Bernanke, former chairman of Princeton’s economics department, who hired Bendheim’s director, Yacine Ait-Sahalia?

Like the Bendheim Center, Princeton Engineering’s Department of Operations Research and Financial Engineering, known as ORFE, is young, unique and quietly influential. The first department of its kind, its province is engineering for business, commerce, and industry. For a sampling of themes in ORFE research, check out the papers presented in May at the 4th Oxford-Princeton Conference in Financial Mathematics, which include Jianqing Fan on option pricing, Birgit Rudloff on convex hedging, and Ronnie Sircar on credit derivatives.

“One reason for the success of this biannual workshop is that graduate students are important contributors,” Carmona tells EQN. The conference has been so successful that it has inspired several copycat collaborations between other universities.

While the powerful tools that Carmona and others at ORFE develop are highly sought after by Wall Street, these same tools can tackle problems in myriad other fields. Surely one of the more unusual senior theses that Carmona has supervised was that of Katherine Milkman, who subjected fiction published by The New Yorker magazine to rigorous mathematical analysis in 2004. The New York Times published an article about Milkman’s thesis, quoting legendary New Yorker writer Roger Angell as saying he was “personally riveted” by her project.

As part of Carmona’s current work on energy trading, he is analyzing the impact of the European Union “cap-and-trade” emission markets on electricity prices and on the global level of greenhouse gas emissions in the atmosphere. He recently gave talks at Stanford and Banff outlining his research into the design of carbon-credit markets, which are are bound to be part of the larger effort to head off climate change. (While we are on the subject of climate change, be sure to listen to Nell Boyce’s recent NPR feature on the carbon wedge game created by those gurus of global warming, Rob Socolow and Stephen Pacala).

You can find the Bendheim article in its entirety here. Also of interest: on this UCTV video podcast Carmona examines “the role played by mathematics in the ‘Wild Wild West’ of the pre-Enron collapse and the role that the mathematicians should play in the current search for sanity.”

Photo by Mark Czajkowski, courtesy Princeton Packet (Rene Carmona, left, with Yacine Ait-Sahalia).

 
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