Cover

Half-title

Title

Copyright

Contents

Contributors

Foreword

Preface

Acknowledgments

PartI General overview

1 Some financial optimization models:I Risk management

1 Introduction

2 Problem domains

3 Model domains

ACKNOWLEDGMENTS

NOTES

REFERENCES

2 Some financial optimization models:II Financial engineering

1 Introduction

2 Model domains

3 Solution methodologies

4 Conclusions

Appendix: Estimation of the term structure of interest rates

Al Background

A2 The optimization model

A.3 Extensions: Monte Carlo simulation

ACKNOWLEDGMENTS

NOTES

REFERENCES

3 New "financial market equilibrium" results: implications for practical financial optimization

1 Market equilibrium with restricted borrowing

2 Implications for practical portfolio optimization

NOTES

REFERENCES

4 Empirical tests of biases in equity portfolio optimization

1 Introduction

2 Empirical tests of variance forecasts for optimized and non-optimizedportfolios

3 Comparison of optimization and alternative portfolio constructiontechniques: how do you biukt the best active portfofio?

4 Summary

NOTES

REFERENCES

Part II Models

5 An economic approach to valuation of single premium deferred annuities

1 Introduction

2 Economic valuation of SPDAs: an overview

3 SPDA characteristics

4 SPDA valuation: sensitivity to economic forces

5 SPDA valuation: policy terms and crediting strategies

6 Implications for asset allocation

7 Conclusions

Commentary by D.F. Babbel

6 The optimal portfolio system: targeting horizon total returns under varying interest-rate scenarios

1 Introduction

2 Structured portfolios

3 Evaluation frameworks

4 Scenario analysis

5 Applications of the Optimal Portfolio System

6 Summary

Appendix: Mathematical formulations

REFERENCES

7 Optimization tools for the financial manager's desk

1 Building financial optimization models

2 An asset funding optimization model

3 Bank reserve management optimization

ACKNOWLEDGMENTS

NOTES

REFERENCES

8 A flexible approach to interest-rate risk management

1 Introduction

2 Measuring interest-rate risk

3 Factor-risk management

4 Conclusions

NOTES

REFERENCES

9 Currency hedging strategies for US investment in Japan and Japanese investment in the US

1 Introduction

2 Hedging a US stock portfolio against a possible increase in the valueof the yen for a Japanese investor

3 A partial hedge: the basic idea

4 Testing out the partial hedge idea: Japanese investment in US Treasury bonds4

5 Hedging a Japanese portfolio against a possible drop in the value ofthe yen for a US investor

6 Adjusting the amount of the hedge

7 Hedged and unhedged returns11

NOTES

REFERENCES

Commentary by Y. Beppu

Part III Methodologies

10 Incorporating transaction costs in models for asset allocation

1 Introduction

2 Single-period asset allocation

3 Multiperiod asset allocation

4 Greater realism for asset allocation

Appendix: Financial networkmodels

NOTES

REFERENCES

11 Bond portfolio analysis using integer programming

1 Introduction

2 Categories of bond portfolios

3 A model for bond portfolio optimization

4 Bond portfolio objectives

5 Portfolio constraints

6 Solution considerations

7 Bond portfolio examples

REFERENCES

12 Scenario immunization

1 Introduction

2 A model for structuring immunized portfolios

3 A stochastic immunization model

4 A scenario optimization model for portfolio immunization

5 Scenario dedication (cashflow matching)

6 Relationship to scenario immunization

7 Scenario generation for portfolio immunization

8 Conclusions

ACKNOWLEDGMENTS

REFERENCES

13 Mortgages and Markov chains: a simplified evaluation model

1 Introduction

2 Markov chain models of interest rates

3 Mortgage-backed securities

4 Evaluation: direct approaches

5 Evaluation: simplified approach

6 Example

REFERENCES

14 Parallel Monte Carlo simulation of mortgage-backed securities

1 Introduction

2 Monte Carlo simulation of mortgage-backed securities

3 Parallel and distributed computing

4 Conclusions

ACKNOWLEDGMENTS

REFERENCES

Index