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Financial Modeling Under Multiple Criteria

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Network Models in Economics and Finance

Part of the book series: Springer Optimization and Its Applications ((SOIA,volume 100))

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Abstract

Financial modeling has become increasingly important for financial decision making and risk management. Over the years, the sophistication and complexity of financial models has increased, but the recent crisis raised criticism on their effectiveness. From the point of view of financial theory, financial modeling is mainly based on a normative and descriptive approach, which has adopted the wealth maximization principle. The multicriteria decision aid (MCDA) paradigm extends and enhances this framework, emphasizing the multidimensional aspects of financial decisions, which can be represented by quantitative and qualitative factors. MCDA introduces tools and methods that enable the structuring of financial problems, the analysis of trade-offs among multiple objectives, and the evaluation of multiple ways of actions, in a systematic and rigorous manner. This paper discusses the important role that MCDA can play in improving financial models for decision making using examples from the areas of investment appraisal, portfolio selection, and banking management. An up-to-date review of the relevant literature in these two areas is also presented.

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Notes

  1. 1.

    The term “utility theory” is usually used in the context of decisions under uncertainty, whereas “value theory” is often preferred for deterministic problems. Having this distinction in mind, in order to simplify the presentation in the remainder of the chapter we shall use the term “utility” to cover both situations.

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Authors and Affiliations

  1. School of Production Engineering and Management, Technical University of Crete, University Campus, 73100, Chania, Greece

    Michael Doumpos & Constantin Zopounidis

  2. Audencia Nantes School of Management, Nantes Cedex 3, France

    Constantin Zopounidis

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  1. Michael Doumpos
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  2. Constantin Zopounidis
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Correspondence to Michael Doumpos .

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Editors and Affiliations

  1. Laboratory of Algorithms and Technologies for Network Analysis, National Research University, Higher School of Economics, Nizhny Novgorod, Russia

    Valery A. Kalyagin

  2. Department of Industrial and Systems Engineering, University of Florida, Gainesville, Florida, USA

    Panos M. Pardalos

  3. Department of Mathematics, National Technical University of Athens, Athens, Greece

    Themistocles M. Rassias

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Doumpos, M., Zopounidis, C. (2014). Financial Modeling Under Multiple Criteria. In: Kalyagin, V., Pardalos, P., Rassias, T. (eds) Network Models in Economics and Finance. Springer Optimization and Its Applications, vol 100. Springer, Cham. https://doi.org/10.1007/978-3-319-09683-4_7

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