Karl Schmedders

Professor of Finance

Karl Schmedders is Professor of Finance. His research and teaching currently focus on sustainability and the economics of climate change. He is therefore able to provide key insights on the transition risk arising from the shift to a greener economy and help companies face up to the challenges of potential asset degradation and increasing carbon prices.

He says finance and economics offer many tools to combat climate change, and the power of incentives and markets can be employed to make progress, and argues that businesses and consumers need to take a leading role in the search for solutions to the climate crisis, and not just wait for governments and policy makers to introduce climate change mitigation and adaptation measures.

Global warming is the defining problem of our times, which deserves the attention of business leaders. It is not just short-term hype.

Schmedders is passionate about the importance of a “just transition” in which no one loses out as a result of action to tackle climate change. He believes that more attention needs to be paid to the S and G elements of the ESG (environmental, social and governance) equation, to ensure that action on the environmental component does not adversely affect poor people and those living in developing countries. In his view, humanity will fail in its fight against climate change and global warming if it does not also address inequality and ensure a just transition.

His expertise in computational methods in finance means that he is able to apply numerical solution techniques to complex economic and financial models and shed light on a range of topical market issues and industry problems for organizations. He was Director of IMD’s custom program for Malaysian bank Maybank and has worked with a range of clients such as ABB, Airbus, Eneva, Evonik, Orkla and Julius Bär.

He is also Director of IMD’s new online certification course for structured investment products in partnership with Swiss company Leonteq, teaches in the Advanced Management Concepts (AMC) and Executive MBA programs, and is an advisor on International Consulting Projects in the MBA program.

He has published numerous research articles in international academic journals such as Econometrica, Review of Economic Studies, Journal of Financial Economics, Journal of Finance, Review of Financial Studies, Management Science and Operations Research.

Before joining IMD in 2019, Schmedders was Professor of Quantitative Business Administration at the University in Zurich and Associate Professor of Managerial Economics and Decision Sciences at the Kellogg School of Management at Northwestern University in Evanston, Illinois. He received his PhD from Stanford University and received several teaching awards from both Stanford and Kellogg.

He remains a Visiting Professor of Executive MBA Education at Kellogg School of Management and is a board member of Swiss firms LPX Group and SYLVA AG. He is also a fellow of the Game Theory Society.

Selected publications
Article
A large-scale optimization model for replicating portfolios in the life insurance industry
Replicating portfolios have emerged as an important tool in the life insurance industry, used for the valuation of companies’ liabilities. This paper describes the replicating portfolio (RP) model ...
Published 1 July 2021
Article
Asset pricing with heterogeneous agents and long-run risk
This paper shows that belief differences have strong effects on asset prices in consumption-based asset-pricing models with long-run risks. Belief heterogeneity leads to time-varying consumption an...
Published 1 June 2021
Article
What managers need to know about data exchanges: The era of big-data silos is fading. Shared data is the future.
The idea that many businesses rely heavily on data to produce or market goods and services is not new. However, data differs greatly from traditional factors of production, such as capital and labo...
Published 9 June 2020
Article
Higher order effects in asset pricing models with long-run risk
This paper shows that the latest generation of asset pricing models with long‐run risk exhibit economically significant nonlinearities, and thus the ubiquitous Campbell‐Shiller log-linearization ca...
Published 2 February 2018
Article
Optimal and naive diversification in currency markets
DeMiguel, Garlappi, and Uppal (Review of Financial Studies, 22 (2009), 1915–1953) showed that in the stock market, it is difficult for an optimized portfolio constructed using mean-variance analysi...
Published 15 August 2016
Article
A polynomial optimization approach to principal-agent problems
This paper presents a new method for the analysis of moral hazard principal–agent problems. The new approach avoids the stringent assumptions on the distribution of outcomes made by the classical f...
Published 3 April 2015
Academic publications
Article
Multi-party certification on blockchain and its impact in the market for lemons
Markets in which similar goods of different qualities are sold suffer from information asymmetries and their negative consequences. Dealers have established themselves, and mediate these markets th...
Published 3 April 2022
Article
Re-use of collateral: Leverage, volatility, and welfare
We assess the implications of collateral re-use on leverage, volatility, and welfare within a calibrated infinite-horizon asset-pricing model with heterogeneous agents and disaster shocks. In our m...
Published 4 April 2022
Article
Asset pricing with heterogeneous agents and long-run risk
This paper shows that belief differences have strong effects on asset prices in consumption-based asset-pricing models with long-run risks. Belief heterogeneity leads to time-varying consumption an...
Published 1 June 2021
Article
A large-scale optimization model for replicating portfolios in the life insurance industry
Replicating portfolios have emerged as an important tool in the life insurance industry, used for the valuation of companies’ liabilities. This paper describes the replicating portfolio (RP) model ...
Published 1 July 2021
Article
Discrete‐time dynamic principal–agent models: Contraction mapping theorem and computational treatment
We consider discrete‐time dynamic principal–agent problems with continuous choice sets and potentially multiple agents. We prove the existence of a unique solution for the principal's value functio...
Published 20 November 2020
Article
Computing economic equilibria using projection methods
The analysis of dynamic economic models routinely leads to the mathematical problem of determining an unknown function for which no closed-form solution exists. Economists must then resort to metho...
Published 2 August 2020
Article
Financial innovation and asset price volatility
We compare asset prices in an overlapping generations model for incomplete and complete markets. Individuals within a generational cohort have heterogeneous beliefs about future states of the econo...
Published 1 May 2012
Article
Higher order effects in asset pricing models with long-run risk
This paper shows that the latest generation of asset pricing models with long‐run risk exhibit economically significant nonlinearities, and thus the ubiquitous Campbell‐Shiller log-linearization ca...
Published 2 February 2018
Article
The economic and public health impact of influenza vaccinations: Contributions of Swiss pharmacies in the 2016/17 and 2017/18 influenza seasons and implications for vaccination policy
Healthy adults have had the option to receive prescriptionless vaccination against influenza in pharmacies of several Swiss cantons since the 2015/16 influenza season. We aimed to assess in a cost-...
Published 17 December 2019
Article
Statistical approximation of high-dimensional climate models
We propose a general emulation method for constructing low-dimensional approximations of complex dynamic climate models. Our method uses artificially designed uncorrelated CO2 emissions scenarios, ...
Published 1 January 2020
Insight for Executives
ESG – Making sense of the madness
Video
ESG – Making sense of the madness
‘The E and the S are competing for attention, and the greener we go, the more social harm we need to account for,’ says IMD Professor of Finance Karl Schmedders.
Published 8 July 2021
DIY Cambridge Analytica: Running personality analytics
Case Study
DIY Cambridge Analytica: Running personality analytics
The case walks the readers first through the Cambridge Analytica scandal, eliciting its effect and presenting an overview of the analysis the infamous company did. Readers are then introduced with ...
Published 18 March 2021
Article
"Hordes of zombies and fallen angels point to horror recovery"
Professor of Finance says record corporate debt meant cash-strapped companies were dangerously exposed even before the pandemic, but strong companies could yet profit.
Published 15 July 2020
Article
What managers need to know about data exchanges: The era of big-data silos is fading. Shared data is the future.
The idea that many businesses rely heavily on data to produce or market goods and services is not new. However, data differs greatly from traditional factors of production, such as capital and labo...
Published 9 June 2020
Attack of zombie companies: don’t let them eat bailouts that are vital to restore the economy
Article
Attack of zombie companies: don’t let them eat bailouts that are vital to restore the economy
Governments are all deciding which struggling companies to help out in the COVID-19 pandemic.
Published 2 June 2020
Coronavirus: Digital contact tracing doesn’t have to sacrifice privacy
Article
Coronavirus: Digital contact tracing doesn’t have to sacrifice privacy
We can develop a data consciousness, becoming aware of the power of our data, taking control over it, and reshaping the way it is handled.
Published 28 April 2020
Leading in turbulent times webinar series: Surviving the shockwaves
Video
Leading in turbulent times webinar series: Surviving the shockwaves
Financial markets and the COVID-19 crisis
Published 9 April 2020
Programs
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Location: Lausanne Length: 5 days Fee: CHF 10,900 Next start: 26 June 2023
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Location: Lausanne Length: 15 months Fee: CHF 115,000