Optimization models are effective for solving significant problems in finance, including long-term financial planning and other portfolio problems. Prominent examples include: asset-liability management for pension plans and insurance companies, integrated risk management for intermediaries, and long-term planning for individuals. Several applications will be briefly mentioned. Three distinct approaches are available for solving multi-stage financial optimization models: 1) dynamic stochastic control, 2) stochastic programming, and 3) optimizing a stochastic simulation model. We briefly review the pros and cons of these approaches, discuss further applications of financial optimization, and conclude with topics for future research.
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Published online December 15, 2000
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Mulvey, J. Introduction to financial optimization: Mathematical Programming Special Issue. Math. Program. 89, 205–216 (2001). https://doi.org/10.1007/PL00011395
- Simulation Model
- Risk Management
- Optimization Model
- Mathematical Program
- Significant Problem