One way of doing this is actually knitting the whole sweater. But for those of you who don't know how to knit (like me!) I'm guessing there might be a way to cut the knit so that it doesn't shread the whole sweater. I found this on youtube wich might help in the cutting but then you'll have to figure out how to do the finishing touches. I would try this on an old sweater first!
Here is another way to add a ribbon to a sweater:
Image Sources: Zara / duitang.com