Financial Optimization

doi:10.1017/CBO9780511522130

The use of formal mathematical models and optimization in finance has become common practice in the 1980s and 1990s. This book clearly presents the exciting symbiosis between the fields of finance and management science/operations research. Prominent researchers present the state of the art in financial optimization, while analysts from industry discuss the latest business techniques practised by financial firms in New York, London and Tokyo. The book covers a wide range of topics: portfolio management of equities and fixed income investments, the pricing of complex insurance, mortgage and other asset-backed products, and models for risk-management and diversification.

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Contents

Frontmatter
pp i-vi
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Contents
pp vii-viii
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List of contributors
pp ix-x
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Foreword
pp xi-xii
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Preface
pp xiii-xvi
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Acknowledgments
pp xvii-xviii
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Part I - General overview
pp 1-2
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1 - Some financial optimization models: I Risk management
pp 3-36
- By Henrik Dahl, Alexander Meeraus, Stavros A. Zenios
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2 - Some financial optimization models: II Financial engineering
pp 37-71
- By Henrik Dahl, Alexander Meeraus, Stavros A. Zenios
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3 - New “financial market equilibrium” results: implications for practical financial optimization
pp 72-79
- By Harry M. Markowitz
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4 - Empirical tests of biases in equity portfolio optimization
pp 80-98
What do ex-ante mean-variance optimal portfolios look like ex-post?
- By Peter Muller
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Part II - Models
pp 99-100
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5 - An economic approach to valuation of single premium deferred annuities
pp 101-131
- By Michael R. Asay, Peter J. Bouyoucos, Anthony M. Marciano
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Commentary by D.F. Babbel
pp 132-135
- By David F. Babbel
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6 - The optimal portfolio system: targeting horizon total returns under varying interest-rate scenarios
pp 136-175
- By Evdokia Adamidou, Yosi Ben-Dov, Lisa Pendergast, Vincent Pica
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7 - Optimization tools for the financial manager's desk
pp 176-188
- By Mordecai Avriel
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8 - A flexible approach to interest-rate risk management
pp 189-209
- By Henrik Dahl
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9 - Currency hedging strategies for US investment in Japan and Japanese investment in the US
pp 210-235
- By William T. Ziemba
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Commentary by Y. Beppu
pp 236-240
- By Y. Beppu
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Part III - Methodologies
pp 241-242
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10 - Incorporating transaction costs in models for asset allocation
pp 243-259
- By John M. Mulvey
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11 - Bond portfolio analysis using integer programming
pp 260-289
- By Robert M. Nauss
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12 - Scenario immunization
pp 290-308
- By Ron S. Dembo
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13 - Mortgages and Markov chains: a simplified evaluation model
pp 309-324
- By Paul Zipkin
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14 - Parallel Monte Carlo simulation of mortgage-backed securities
pp 325-343
- By Stavros A. Zenios
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Index
pp 344-350
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Financial Optimization

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Contents

Frontmatter
pp i-vi

Contents
pp vii-viii

List of contributors
pp ix-x

Foreword
pp xi-xii

Preface
pp xiii-xvi

Acknowledgments
pp xvii-xviii

Part I - General overview
pp 1-2

1 - Some financial optimization models: I Risk management
pp 3-36

2 - Some financial optimization models: II Financial engineering
pp 37-71

3 - New “financial market equilibrium” results: implications for practical financial optimization
pp 72-79

4 - Empirical tests of biases in equity portfolio optimization
pp 80-98

Part II - Models
pp 99-100

5 - An economic approach to valuation of single premium deferred annuities
pp 101-131

Commentary by D.F. Babbel
pp 132-135

6 - The optimal portfolio system: targeting horizon total returns under varying interest-rate scenarios
pp 136-175

7 - Optimization tools for the financial manager's desk
pp 176-188

8 - A flexible approach to interest-rate risk management
pp 189-209

9 - Currency hedging strategies for US investment in Japan and Japanese investment in the US
pp 210-235

Commentary by Y. Beppu
pp 236-240

Part III - Methodologies
pp 241-242

10 - Incorporating transaction costs in models for asset allocation
pp 243-259

11 - Bond portfolio analysis using integer programming
pp 260-289

12 - Scenario immunization
pp 290-308

13 - Mortgages and Markov chains: a simplified evaluation model
pp 309-324

14 - Parallel Monte Carlo simulation of mortgage-backed securities
pp 325-343

Index
pp 344-350

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Financial Optimization

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