Professor: Javier Pena
Course Number: 46976
Description: Optimization models play an increasingly important role in financial models. Many computational finance problems ranging from asset allocation to risk management, from option pricing to model calibration, can be efficiently solved using modern optimization techniques. This course covers several classes of optimization models (linear, quadratic, stochastic, and dynamic optimization) encountered in financial contexts. For each model class, after a survey of the relevant theory and solution methods, we will discuss problems in mathematical finance that are amenable to that problem class.
Two of the main assignments in the course are team projects involving real data. These projects are simplifications of problems faced by practitioners. The first project is a bond portfolio construction for a pension fund. For the second project, several possible topics will be suggested. On the last day of classes some teams will present the highlights of their project in class.
Text: "Optimization Methods in Finance" 2nd edition by G. Cornuejols, J. Pena, and R. Tutuncu.
Prerequisites: 46945, 46972