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SØREN NIELSEN (1959-2003) was an Associate Professor in the Department of Informatics and Mathematical Modeling at the Technical University of Denmark. He worked at the World Bank and the University of Texas at Austin. He held degrees in computer science and a PhD in decision sciences from the Wharton School of the University of Pennsylvania.
STAVROS A. ZENIOS is Professor of Finance and Management Science at the University of Cyprus, Director of the HERMES European Centre of Excellence on Computational Finance and Economics, and Senior Fellow at the Wharton Financial Institutions Centre of the University of Pennsylvania. He has co-authored more than 130 articles in some of the premier journals in the filed, serves on the editorial board of six journals, and received numerous awards for his research and publications. His previous books include Practical Financial Optimization: Decision Making for Financial Engineers (Blackwell Publishing, 2007); Performance of Financial Institutions: Efficiency, Innovation, Regulation (Cambridge University Press, 2000); Parallel Optimization: Theory, Algorithms, and Applications (Oxford University Press, 1997); and Financial Optimization (Cambridge University Press, 1996).
Preface | p. xi |
Acknowledgments | p. xiii |
Notation | p. xv |
List of Models | p. xix |
An Introduction to the GAMS Modeling System | p. 1 |
Preview | p. 1 |
Basics of Modeling | p. 1 |
The GAMS Language | p. 2 |
Lexical conventions | p. 3 |
Sets | p. 4 |
Expressions, functions, and operators | p. 6 |
Assignment statements | p. 11 |
Variable declarations | p. 12 |
Constraints: Equation declarations | p. 13 |
Model declarations | p. 14 |
The SOLVE statement and model types | p. 15 |
Control structures | p. 16 |
Conditional compilation | p. 20 |
Getting Started | p. 21 |
The Integrated Development Environment | p. 21 |
Command line interaction | p. 22 |
The model library | p. 22 |
Notes and References | p. 22 |
Data Management | p. 25 |
Preview | p. 25 |
Basics of Data Handling | p. 25 |
Data entry: scalars, parameters, and tables | p. 26 |
External data files: include | p. 28 |
Output: display and put | p. 29 |
Data Generation | p. 31 |
A Complete Example: Portfolio Dedication | p. 31 |
The source file | p. 32 |
The FINLIB files | p. 39 |
Mean-Variance Portfolio Optimization | p. 41 |
Preview | p. 41 |
Basics of Mean-Variance Models | p. 42 |
Data estimation for the mean-variance model | p. 46 |
Allowing short sales | p. 48 |
The FINLIB files | p. 49 |
Sharpe Ratio Model | p. 50 |
Risk-free borrowing | p. 51 |
The FINLIB files | p. 53 |
Diversification Limits and Transaction Costs | p. 53 |
Transaction costs | p. 54 |
Portfolio revision | p. 56 |
The FINLIB files | p. 57 |
International Portfolio Management | p. 57 |
Implementation with dynamic sets | p. 58 |
The FINLIB files | p. 61 |
Portfolio Models for Fixed Income | p. 63 |
Preview | p. 63 |
Basics of Fixed-Income Modeling | p. 64 |
Modeling time | p. 64 |
GAMS as a financial calculator: continuous time | p. 66 |
Bootstrapping the term structure of interest rates | p. 68 |
Considerations for realistic modeling | p. 73 |
The FINLIB files | p. 74 |
Dedication Models | p. 74 |
Horizon return model | p. 78 |
Tradeability considerations | p. 79 |
The FINLIB files | p. 82 |
Immunization Models | p. 83 |
The FINLIB files | p. 85 |
Factor Immunization Model | p. 85 |
Direct yield maximization | p. 87 |
The FINLIB files | p. 89 |
Factor Immunization for Corporate Bonds | p. 89 |
The model data sets | p. 89 |
The optimization models | p. 90 |
The FINLIB files | p. 94 |
Scenario Optimization | p. 95 |
Preview | p. 95 |
Data sets | p. 96 |
The FINLIB files | p. 97 |
Mean Absolute Deyiation Models | p. 97 |
Downside risk and tracking models | p. 99 |
Comparing mean-variance and mean absolute deviation | p. 101 |
The FINLIB files | p. 103 |
Regret Models | p. 104 |
The FINLIB files | p. 106 |
Conditional Value-at-Risk Models | p. 106 |
The FINLIB files | p. 108 |
Utility Maximization Models | p. 109 |
The FINLIB files | p. 111 |
Put/Call Efficient Frontier Models | p. 111 |
The FINLIB files | p. 117 |
Dynamic Portfolio Optimization with Stochastic Programming | p. 119 |
Preview | p. 119 |
Dynamic Optimization for Fixed-Income Securities | p. 119 |
Stochastic dedication | p. 120 |
Stochastic dedication with borrowing and lending | p. 122 |
The FINLIB files | p. 124 |
Formulating Two-Stage Stochastic Programs | p. 124 |
Deterministic and stochastic two-stage programs | p. 125 |
The FINLIB files | p. 128 |
Single Premium Deferred Annuities: A Multi-stage Stochastic Program | p. 128 |
Background and data | p. 128 |
The FINLIB files | p. 133 |
Index Funds | p. 137 |
Preview | p. 137 |
Models for Index Funds | p. 138 |
A structural model for index funds | p. 138 |
A co-movement model for index funds | p. 139 |
A selective hedging model for index funds | p. 140 |
The FINLIB files | p. 143 |
Case Studies in Financial Optimization | p. 145 |
Preview | p. 145 |
Application I: International Asset Allocation | p. 146 |
Operational considerations | p. 149 |
Results | p. 151 |
The FINLIB files | p. 156 |
Application II: Corporate Bond Portfolio Management | p. 156 |
The FINLIB files | p. 159 |
Application III: Insurance Policies with Guarantees | p. 159 |
The FINLIB files | p. 164 |
Application IV: Personal Financial Planning | p. 164 |
The FINLIB files | p. 168 |
Bibliography | p. 169 |
Index | p. 171 |
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