Finance Genius Andrew Lo Explains How The World’s Biggest Problems Can Be Fixed With Financial Engineering

From Business Insider, by Rob Wile on February 13, 2013

Andrew Lo is a Professor of finance at the MIT Sloan School of Management.  He’s also the director of MIT’s Laboratory for Financial Engineering.

Most people on Wall Street know him as the leading mind in hedge funds and financial engineering.

Time Magazine recently named him to its list of the 100 most influential people in the world. And it wouldn’t be exaggerating to say that his latest project could change the world. It involves using collateralized debt obligations to cure cancer. We wrote about this last year. But in case you missed it, the idea would be using “research based obligations” or RBO bonds, that you could divide into tranches with different risk levels based on stages of research into cancer drugs. Lower rated, higher yield notes would be available at the beginning of a drug trial, with progressively less riskier notes as the trial proceeds.

In other words, the principles that made the world’s financial markets significantly more liquid, more efficient, and more accessible could cause financing and interest to explode in cancer research.

Lo believes this idea could have broad applications.  If it works with cancer, than it could also be used to propel alternative energy and end climate change.

We recently spoke with Professor Lo about the state of the markets, why investing must now be treated like exercise, and what we can expect from his latest work.

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