Computational Methods in Financial Engineering: Essays in Honour of Manfred Gilli PDF
Preview Computational Methods in Financial Engineering: Essays in Honour of Manfred Gilli
Computational Methods in Financial Engineering · Erricos J. Kontoghiorghes Berç Rustem Peter Winker Editors Computational Methods in Financial Engineering Essays in Honour of Manfred Gilli 123 Prof.ErricosJ.Kontoghiorghes Prof.BerçRustem UniversityofCyprus DepartmentofComputing DepartmentofPublic 180Queen’sGate andBusinessAdministration SouthKensingtonCampus 75KallipoleosSt. ImperialCollegeLondon P.O.Box20537 LondonSW72AZ CY-1678Nicosia UnitedKingdom Cyprus [email protected] [email protected] Prof.PeterWinker UniversityofGießen DepartmentofEconomics LicherStraße64 35390Gießen Germany [email protected] ISBN978-3-540-77957-5 e-ISBN978-3-540-77958-2 DOI10.1007/978-3-540-77958-2 LibraryofCongressControlNumber:2008921042 (cid:1)c 2008Springer-VerlagBerlinHeidelberg Thisworkissubjecttocopyright.Allrightsarereserved,whetherthewholeorpartofthematerialis concerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation,broadcasting, reproductiononmicrofilmorinanyotherway,andstorageindatabanks.Duplicationofthispublication orpartsthereofispermittedonlyundertheprovisionsoftheGermanCopyrightLawofSeptember9, 1965,initscurrentversion,andpermissionforusemustalwaysbeobtainedfromSpringer.Violations areliabletoprosecutionundertheGermanCopyrightLaw. Theuseofgeneraldescriptivenames,registerednames,trademarks,etc.inthispublicationdoesnotimply, evenintheabsenceofaspecificstatement,thatsuchnamesareexemptfromtherelevantprotectivelaws andregulationsandthereforefreeforgeneraluse. Production:le-texJelonek,Schmidt&VöcklerGbR,Leipzig Coverdesign:WMXDesignGmbH,Heidelberg Printedonacid-freepaper 987654321 springer.com This book is dedicated to Manfred Gilli Preface Manfred is a well known researcher in computational economics and finance. He is the only known member of this community who has also been a rally racer.His many interests include fine wines, running Marathons,sailing and hill climbing. Despite this latter interest, Manfred has not particularly favouredhillclimbing asacomputationaltoolandhas preferredextensivere- searchinheuristicalgorithmsforcomputationallyhardproblems.Hisinterests were initially focused on econometrics and subsequently moved to computa- tional finance. He has contributed extensively to the areas of model solution algorithms and optimization in finance. He has forged important links with the finance sector to ensure solid research collaboration, he has helped the academic research community by the successful conferences he has organised and he has helped numerous researchers with their computational problems. TheconferencesManfredhasorganisedhavecontributedtotheestablishment of two communities. The first such conference was the Computational Eco- nomics and Finance Conference in Geneva, 1996, which helped establish the Society for Computational Economics. The most recent such conference was the Computational Management Science Meeting in Geneva, 2007. Manfred is the author of many research papers and edited volumes in computational economics and finance. He is currently the President of the Society for Computational Economics. This volume is dedicated to Manfred in recognitionof his researchactivities and the generous help and support he has provided to young researchers. The chapters of this volume are selected to celebrate Manfred’s contribu- tions, thus far, in three distinct areas. The first, portfolio optimisation and derivatives, includes contributions in portfolio optimisation with four chap- ters by Kuhn, Parpas, Rustem; Maringer; Specht, Winker; AitSahlia, Sheu, Pardalos,one chapterfocusing onvalueatriskmodels by Alentorn,Markose, and two chapters on derivatives by Dalakouras, Kwon, Pardalos; Chiarella, El-Hassan,Kucera. The second area is estimation and classificationwith two chapters on interest and exchange rates by La Rocca, Perna; Krishnakumar, Neto, three chapterson prediction,classificationanddecision rules in finance VIII Preface byGenton,Ronchetti;Bugera,Uryasev,Zrazhevsky;Garc´ıa-Almanza,Tsang, Galv´an-Lo´pez. The third area is banking, risk and macro-modelling. Contri- butions are three chapters on risk models by Gonza´lez-Hermosillo, Li; Iori, Deissenberg; Mitschele, Schlottmann, Seese, a chapter on network models in finance by Nagurney,Qiang andtwo chapters onstochastic models of finance and macroeconomics by Albanese, Trovato; Kendrick, Tucci, Amman. The editors are most grateful to the anonymous referees for their contri- bution which helped to increase the quality of the papers substantially. Fur- thermore, the editors owe thanks to the following people for their support in proofreadingandLATEXimplementation:VahidinJeleskovic,MariannaLyra, Mark Meyer, Christoph Preussner, Chris Sharpe, and Markus Spory. Nicosia, London, and Gießen, Erricos J. Kontoghiorghes January 2008 Berc¸ Rustem Peter Winker Contents Part I Portfolio Optimization and Option Pricing Threshold Accepting Approach to Improve Bound-based Approximations for Portfolio Optimization Daniel Kuhn, Panos Parpas, Berc¸ Rustem .......................... 3 Risk Preferences and Loss Aversion in Portfolio Optimization Dietmar Maringer ............................................... 27 Generalized Extreme Value Distribution and Extreme Economic Value at Risk (EE-VaR) Amadeo Alentorn, Sheri Markose .................................. 47 Portfolio Optimization under VaR Constraints Based on Dynamic Estimates of the Variance-Covariance Matrix Katja Specht, Peter Winker ....................................... 73 Optimal Execution of Time-Constrained Portfolio Transactions Farid AitSahlia, Yuan-Chyuan Sheu, Panos M. Pardalos .............. 95 Semidefinite Programming Approaches for Bounding Asian Option Prices Georgios V. Dalakouras, Roy H. Kwon, Panos M. Pardalos............103 The Evaluation of Discrete Barrier Options in a Path Integral Framework Carl Chiarella, Nadima El–Hassan, Adam Kucera....................117 X Contents Part II Estimation and Classification Robust Prediction of Beta Marc G. Genton, Elvezio Ronchetti.................................147 Neural Network Modelling with Applications to Euro Exchange Rates Michele La Rocca, Cira Perna .....................................163 Testing Uncovered Interest Rate Parity and Term Structure Using Multivariate Threshold Cointegration Jaya Krishnakumar, David Neto ...................................191 Classification Using Optimization: Application to Credit Ratings of Bonds Vladimir Bugera, Stan Uryasev, Grigory Zrazhevsky..................211 Evolving Decision Rules to Discover Patterns in Financial Data Sets Alma Lilia Garc´ıa-Almanza, Edward P.K. Tsang, Edgar Galv´an-L´opez..239 Part III Banking, Risk and Macroeconomic Modelling A Banking Firm Model: The Role of Market, Liquidity and Credit Risks Brenda Gonz´alez-Hermosillo, Jenny X. Li...........................259 Identification of Critical Nodes and Links in Financial Networks with Intermediation and Electronic Transactions Anna Nagurney, Qiang Qiang .....................................273 An Analysis of Settlement Risk Contagion in Alternative Securities Settlement Architectures Giulia Iori, Christophe Deissenberg.................................299 Integrated Risk Management: Risk Aggregation and Allocation Using Intelligent Systems Andreas Mitschele, Frank Schlottmann, Detlef Seese ..................317 A Stochastic Monetary Policy Interest Rate Model Claudio Albanese, Manlio Trovato..................................343 Duali: Software for Solving Stochastic Control Problems in Economics David A. Kendrick, Marco P. Tucci, Hans M. Amman................393 Index..........................................................421 List of Contributors Farid AitSahlia Carl Chiarella University of Florida School of Finance and Economics Gainesville University of Technology, Sydney Florida, 32611,USA P.O. Box 123, [email protected] Broadway NSW 2007 Australia [email protected] Claudio Albanese Level3finance Georgios V. Dalakouras London, UK University of Florida [email protected] Weil Hall P.O. Box 116595 Amadeo Alentorn Gainesville, FL, 32611-6595,USA Centre for Computational Finance [email protected] and Economic Agents (CCFEA) and Old Mutual Asset Managers (UK) Christophe Deissenberg Ltd Universit´e de la [email protected] M´editerran´ee and GREQAM Chaˆteau Lafarge Hans. M. Amman Route des Milles, Utrecht School of Economics 13290 Les Milles, France. Utrecht University christophe.deissenberg@ Heidelberlaan 8 univmed.fr 3584 CS Utrecht, the Netherlands [email protected] Nadima El–Hassan Vladimir Bugera School of Finance and Economics University of Florida University of Technology, Sydney ISE, Risk Management and P.O. Box 123 Financial Engineering Lab Broadway NSW 2007 Australia [email protected] [email protected] XII List of Contributors Edgar Galv´an-Lo´pez Adam Kucera Department of Computer Science Integral Energy, Australia University of Essex [email protected] Wivenhoe Park Colchester CO4 3SQ, U.K. Daniel Kuhn [email protected] Department of Computing Alma Lilia Garc´ıa-Almanza Imperial College London Department of Computer Science 180 Queen’s Gate University of Essex London SW7 2BZ, UK Wivenhoe Park [email protected] Colchester CO4 3SQ, U.K. [email protected] Roy H. Kwon Marc G. Genton University of Toronto University of Geneva 5 King’s College Road Bd du Pont-d’Arve 40 Toronto, Ontario, M5S3G8, Canada CH-1211 Geneva 4, Switzerland [email protected] [email protected] Michele La Rocca Brenda Gonz´alez-Hermosillo Department of Economics International Monetary Fund and Statistics 700 19th Street, NW University of Salerno Washington, DC 20431 Via Ponte Don Melillo [email protected] 84084 Fisciano (SA), Italy Giulia Iori [email protected] Department of Economics City University Jenny X. Li Northampton Square Department of Mathematics and London, EC1V 0HB Department of Economics United Kingdom The Pennsylvania State University [email protected] University Park, PA 16802 David A. Kendrick and Yunnan University of Department of Economics Finance and Economics University of Texas [email protected] Austin Texas 78712,USA Dietmar Maringer [email protected] Centre for Computational Finance Jaya Krishnakumar and Economic Agents (CCFEA) University of Geneva University of Essex Bd du Pont-d’Arve 40 Wivenhoe Park CH-1211 Geneva 4, Switzerland Colchester CO4 3SQ jaya.krishnakumar@ United Kingdom metri.unige.ch [email protected]
The list of books you might like
