Research projects

Project CEMAPRE internal

TitleDesign risk and Investor profiling (2019)
ParticipantsRaquel Gaspar (Principal Investigator), Paulo M Silva, João B Sousa
SummaryIn any engineering field there may exist design risk. Financial engineering is not exception. The
introduction of the concept of Design Risk in finance is recent and needs to be further developed.
This projects looks into design risk of concrete products, but also aims a developing new, more
general, measures and management techniques for this new risk.
Ultimately design risk is introduced in financial markets by issuers and are beard by investors that
are unaware it, raising also questions about the role of financial advisors.

Nowadays, investor risk profiling /protection is at the heart of market regulations. The idea is to
ensure that investors are sold only products that are suitable for them. For instance in the
European Union, Article 25 of the Markets in Financial Instruments Directive II (MiFID II) provides
guidance on suitability. Regulations have up to now focused on the need of investor profiling,
overlooking need to control the products themselves or the way profiles are mapped to financial
solutions. In a world where robot advising is taking the role of human financial advisors, these
issues need to start being addressed.

This project looks into these important and interconnected issues: design risk and investor