Thomas, Lyn C.
Mathematical programming and its application in finance
Neogy, S.K., Bapat, R.B., Das, A.K. and Parthasarathy, T. (eds.)
Mathematical Programming and Game Theory for Decision Making.
Indian Statistical Institute
(Statistical Science and Interdisciplinary Research, 1).
Full text not available from this repository.
This article reviews some of the applications of mathematical programming in
finance. Of course mathematical programming has long been recognised as a vital
modelling approach to solve optimization problems in finance. Markowitz’s Nobel
Prize winning work on portfolio optimization showed how important a technique
it is. Other prominent and well documented applications in long-term financial
planning and portfolio problems include asset-liability management for pension
plans and insurance companies, integrated risk management for intermediaries,
and long-term planning for individuals. Nowadays there is an emphasis on the
interaction between optimization and simulation techniques in these problems
There are though many uses of mathematical programming in finance which
are not purely about optimizing the return on a portfolio and we will also discuss
these applications. For example we discuss how one can use linear programming
to estimate the term structure of interest rates for the prices of bonds. In the
personal sector finance, where the lending is far greater than the higher profile
corporate sector, the use of linear programming as a way of developing credit
scorecards is proving extremely valuable.
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