Professor Brings Engineering Expertise to Financial Questions

Dr. James Primbs was the second full-time faculty member hired to the new Department of Systems Engineering.

Dr. James Primbs is using a surprising area of science to predict financial trends – engineering.

Investors have long followed trends to predict the markets, but few bring engineering into their equations. Primbs, a professor in the Erik Jonsson School of Engineering and Computer Science, is studying the financial world using control theory, a field used to create stability in physical systems such as cars, planes and robots.

“I think a lot of what I do is engineering of risk,” said Primbs. “The typical set up in optimal control is that you have some objective that you want to reach, something you want to control and decisions that need to be made in order to meet your objectives.

“In finance, those objectives take the flavor of wanting to control some risk or wanting a tradeoff between managing risk and reward.”

Primbs holds degrees in both mathematics and electrical engineering with highest honors from the University of California, Davis. He then earned a master’s degree in electrical engineering from Stanford University, graduating with a perfect GPA. For his doctorate, he studied control and dynamical systems at the California Institute of Technology and wrote his thesis on nonlinear optimal control.

That background typically leads to a career in control systems, but during Primbs postdoctoral research he got the opportunity to explore his interest in quantitative finance problems. His advisor, Dr. John Doyle of the California Institute of Technology, was interested in broadening the applicability of control problems.

“When you boil financial problems down to the math, they can look like the standard control theory setup, and that’s where my tools and background in systems and control come into play,” Primbs said.

TITLE: Associate professor of systems engineering in the Erik Jonsson School of Engineering and Computer Science

RESEARCH INTERESTS: Applying control systems methods to quantitative finance problems

PREVIOUSLY: Associate professor at Stanford University in the Department of Management Science and Engineering; financial consultant, Stanford Management Company

Primbs said applying feedback control theory to finance could have helped mitigate losses from the stock market crashes that occurred in 2000 and 2008.

“A lot of models people were using just fell apart,” he said. “It turns out that by using these control feedback methods, in this case feedback would be on profit and losses, your performance will be much better when the models are completely unreliable.”

Primbs says that applying feedback control theory to finance doesn’t yet qualify as a trend, but that more people are becoming aware of the possibilities. Primbs has used his financial insight as a consultant to Stanford University’s multi-billion endowment fund, and by helping The Boeing Co. establish models to determine the value of projects. Primbs taught at Stanford University from 2001 until he joined UT Dallas last fall. During his time at Stanford University, Primbs received awards for undergraduate and graduate teaching.

“If I can convince students that this topic is relevant to them beyond what they are going to do as a career, it catches their interest,” he said. “I bring in extra little things that pique my curiosity, and hopefully that’s aligned with what the students want to see.”

At UT Dallas, Primbs became the second full time faculty member in the Department of Systems Engineering, which became official last school year.

“Jim is our first hire in the new department and I feel that UT Dallas is fortunate to have someone with such a strong background in systems theory and connections with the world of finance,” said Dr. Stephen Yurkovich, head of the Department of Systems Engineering and Louis Beecherl Jr. Distinguished Chair.

Primbs teaches courses in the Systems Engineering and Management Program, which is jointly run by the Jonsson School and the Naveen Jindal School of Management.

“The  department is brand new so this is an opportunity to shape things going forward,” Primbs said. “I think it is perfect for someone with my background. I will be able make connections with faculty in finance that typically reside in the management school, as well as train students who are coming from engineering and show them how there are opportunities in the finance field.”

Media Contact: The Office of Media Relations, UT Dallas, (972) 883-2155, [email protected].