Programming Languages and Systems in Computational Economics and Finance

461 Pages·2002·7.752 MB·

by  Matthew J. Saltzman (auth.), Søren S. Nielsen (eds.)

Programming Languages and Systems in Computational Economics and Finance
Advances in Computational Economics
VOLUME 18
SERIES EDITORS
Hans Amman, University ofA msterdam, The Netherlands
Anna Nagumey, University ofM assachusetts at Amherst, USA
EDITORIAL BOARD
Anantha K. Duraiappah, European University Institute
John Geweke, University ofM innesota
Manfred Gilli, University of Geneva
Kenneth L. Judd, Stanford University
David Kendrick, University of Texas at Austin
Daniel McFadden, University of California at Berkeley
Ellen McGrattan, Duke University
Reinhard Neck, University of Klagenfurt
Adrian R. Pagan, Australian National University
John Rust, University ofW isconsin
Berc Rustem, University ofL ondon
Hal R. Varian, University ofM ichigan
The titles published in this series are listed at the end of this volume.
Programming Languages and
Systems in Computational
Economics and Finance
Edited by
s.
S0ren Nielsen
Technical University of Denmark, Denmark
SPRINGER SCIENCE+BUSINESS, MEDIA, B.V.
Library of Congress Cataloging-in-Piblication Data
ISBN 978-1-4613-5369-0 ISBN 978-1-4615-1049-9 (eBook)
DOI 10.1007/978-1-4615-1049-9
Printed on acid-free paper
All Rights Reserved
© 2002 Springer Science+Business Media Dordrecht
Originally published by Kluwer Academic Publishers in 2002
Softcover reprint ofthe hardcover Ist edition 2002
No part of this work may be reproduced, stored in a retrieval system, or transmitted
in any form or by any means, electronic, mechanical, photocopying, microfilming, recording
or otherwise, without written permission from the Publisher, with the exception
of any material supplied specifically for the purpose of being entered
and executed on a computer system, for exclusive use by the purchaser of the work.
Contents
Preface vii
Contributing Authors IX
Part I Models and Modelling
1
COIN-OR: An Open-Source Library for Optimization 3
Matthew J. Saltzman
2
Macroeconomics: What can we learn from the Dynamical Systems literature? 33
Pere Gomis-Porqueras and Alex Haro
3
The rapid implementation of assetlliability models for risk management 63
Jerome L Kruiser
4
Human and Organization Challenges to the Use of Optimization 93
Donald E. Shobrys
Part II High-level and Object Oriented Approaches
5
Object-oriented Programming using Ox 115
Jurgen A. Doomik
6
Design Patterns in Hierarchical Models 149
Chris R. Birchenhall
7
Facilitating applied economic research with Stata 173
Christopher F. Baum
v
vi LANGUAGES AND SYSTEMS IN ECONOMICS AND FINANCE
8
Formulation of Linear Optimization Problems in C++ 199
Tim H. Hultberg
Part III Maple and MATLAB
9
MAPLE and MATLAB for Stochastic Differential Equations in Finance 233
Desmond l. Higham and Peter E. Kloeden
10
Computational Programming Environments 271
Ric D. Herbert
11
Statistics and simulations with Maple 297
lerzy Ombach and lolanta larnicka
12
MATLAB as a Flexible Tool for Data Analysis and Optimisation 331
George R. Lindfield and lohn E. T. Penny
Part IV Options and Differential Equations
13
Option pricing with Excel 369
Peter Honore and Rolf Poulsen
14
Numerical solution of boundary value problems in computational finance 403
lens Hugger
15
MAPLE for Jump-Diffusion Stochastic Differential Equations in Finance 441
Sasha Cyganowski, Lars Grune and Peter E. Kloeden
Preface
The developments within the computationally and numerically oriented ar
eas of Operations Research, Finance, Statistics and Economics have been sig
nificant over the past few decades. Each area has been developing its own
computer systems and languages that suit its needs, but there is relatively little
cross-fertilization among them yet.
This volume contains a collection of papers that each highlights a particular
system, language, model or paradigm from one of the computational disciplines,
aimed at researchers and practitioners from the other fields. The 15 papers cover
a number of relevant topics: Models and Modelling in Operations Research and
Economics, novel High-level and Object-Oriented approaches to programming,
through advanced uses of Maple and MATLAB, and applications and solution
of Differential Equations in Finance. It is hoped that the material in this volume
will whet the reader's appetite for discovering and exploring new approaches
to old problems, and in the longer run facilitate cross-fertilization among the
fields.
We would like to thank the contributing authors, the reviewers, the publisher,
and last, but not least, Jesper Saxtorph, Anders Nielsen, and Thomas Stidsen
for invaluable technical assistance.
THE EOITOR
Vll
Contributing Authors
Christopher F. Baom is an associate professor of economics at Boston College,
where he co-directs the Minor in Scientific Computation in the College of
Arts and Sciences. He is an associate editor of Computational Economics
and The Stata Journal, and serves on the Advisory Council of the Society for
Computational Economics. Baum founded and manages the Boston College
Statistical Software Components archive at RePEc (http://repec.org), the largest
Web repository of Stata code.
Chris R. Birchenhall is Senior Lecturer in Computational Economics in the
School ofE conomic Studies at the University ofM anchester. He was a founding
member of the Society ofC omputational Economics and is on the editorial board
of Computational Economics. His primary interest is in computer simulations
of agent based economic models. He has also done applied econometric work
on seasonality and predicting business cycles with Denise Osborn. He is a long
standing user of C++.
Sasha Cyganowski received his PhD in mathematics from Deakin University in
Australia in 1999. Since then he has held lecturing positions at Trinity College
(affiliated with the University of Melbourne) and Tipperary Institute in Ireland.
Research interests include Symbolic Computation and Stochastic Differential
Equations.
Jurgen A. Doornik is Research Fellow at Nuffield College, University of Ox
ford. He researches on computational econometrics and dynamic econometric
modelling. He is the originator of the Ox language, and works with David
Hendry on PcGive. He has (co-)authored eight books related to the software,
and published papers in Computational Statistics and Data Analysis, The Eco
nomic Journal, Econometrics Journal, and others.
ix
x LANGUAGES AND SYSTEMS IN ECONOMICS AND FINANCE
Pedro Gomis-Porqueras, Ph.D., University of Texas at Austin, is an Assistant
Professor at the University of Miami. His research explores the various aspects
of the relationship between monetary policy, financial sector behavior, and
macroeconomic performance. He is also interested in dynamical systems and
their applications to economics.
Lars Grune received his PhD in Mathematics in 1996 from the Universitat
Augsburg, Germany. Since 1997 he is Assistant Professor ("wissenschaftlicher
Assistent") at the J. W. Goethe Universitat in Frankfurt am Main, Germany. His
research interests lie within the areas of nonlinear control theory, dynamical
systems and numerical analysis.
Alex Haro, Ph.D., Universitat de Barcelona (Spain), is a member of the UB
UPC Dynamical Systems Group, based in Barcelona. He is an associate pro
fessor of the Departament de Matematica Aplicada i Anhlisi of the Universitat
de Barcelona. He has been visiting scholar in the University of Texas at Austin,
supported by the Fulbright program. His reseach focuses on dynamical systems,
numerical methods and their applications to social and natural sciences.
Ric D. Herbert is in the Faculty of Science and Information Technology at
The University of Newcastle, Australia. He has a PhD in computer science and
has spent many years in software development in the information technology
industry.
Desmond J. Higham is a Professor of Mathematics at the University of Strath
clyde. His research activities involve the design and mathematical analysis of
numerical methods for both deterministic and stochastic differential equations.
He has interests in applications to finance and bioinformatics. He is an editor
of the Society for Industrial and Applied Mathematics (SIAM) Journal on Sci
entific Computing and co-author of textbooks published by SIAM on the Latex
typesetting system and the MATLAB computing environment.
Peter Honore received a PhD in finance from the Department of Finance,
Aarhus School of Business in 1998. He has worked as a quantitative analyst at
Salomon Smith Barney, London. Currently, he is working as a senior quantita
tive analyst at Nykredit Bank, Copenhagen. His research areas are mathemati
cal and empirical finance, with a special focus on computational methods and
interest rate modelling.
Contributing Authors xi
Jens Hugger, Associate Professor, Institute for mathematical Sciences, Univer
sity of Copenhagen, Denmark. Ph.D. in Applied Mathematics from University
of Maryland at College Park, 1990. Director of Studies in Mathematical Sci
ences, Faculty of Natural Sciences, University of Copenhagen.
Tim H. Hultberg is working as a Senior Engineer at Critical Software SA,
Portugal, where he has been involved in the implementation of optimization al
gorithms applied to biochemistry and remote sensing. He holds a M.Sc. degree
in Computer Science and Mathematics from the University of Copenhagen and
a Ph.D. degree in Operations Research from the Department of Informatics and
Mathematical Modelling at the Technical University of Denmark.
Jolanta Jamicka is a Ph.D. student at the Jagiellonian University, Krakow,
Poland. Her scientific interests include statistics and computational mathemat
ics. Her M.Sc. thesis addressed the problem of the bandwidth for the density
kernel estimation.
Peter E. K10eden has been Professor of Applied and Instrumental Mathemat
ics at the Johann Wolfgang Goethe University since 1997. He was awarded
his Ph.D. and D.Sc. from the University of Queensland in 1975 and 1995, re
spectively. He is the coauthor of a wellknown text book on numerical methods
for stochastic differential equations and a more recent textbook on MAPLE
for probability theory. His research interests are in dynamical systems, both
deterministic and stochastic, and their numerical approximation.
Jerome L. Kreuser is the Executive Director and Founder of the RisKontrol
Group GmbH in Bern, Switzerland. Prior to that he has served as an Interna
tional Reserves Management Advisor for the IMP, Adjunct Professor of Opera
tions Research at George Washington University, and was 24 years at the World
Bank in positions for the research and application of economic and financial
models.
George Lindfield is a Lecturer in computer science in the School ofE ngineering
and Applied Science at Aston University in England. He is the co-author of two
books and the author of and many journal and conference papers in the areas
of numerical methods and optimisation.
Jerzy Ombach is a professor of mathematics at the Jagiellonian University,
Krakow, Poland. His scientific interests include dynamical systems, statistics
and computational mathematics. He is the author of over 50 research papers