Optimization Methods in Finance ‒ Disopt ‐ EPFL

Lecture

Optimization Methods in Finance

Lecturer

Assistant

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Description

Many computational problems in finance can be solved by optimization techniques. This course will cover a selection of such methods which are nowadays the basis of many products offered by financial service providers. The students will get to learn the main optimization techniques and will be anabled use them to solve typical optimization problems arizing in finance.
Especially the following topics will be covered.

Linear Programming: Computing a dedicated bond portfolio, asset pricing
Quadratic Programming: Portfolio Optimization (Markowitz model)
Integer Programming: Constructing an index fund
Dynamic Programming: Option Pricing, Structuring asset backed securities
Stochastic Programming: Asset/Liability management

The lectures and the exercises will be given in English. We assume basic knowledge in linear algebra and basic programming knowledge in C++ or Matlab.

Grading

A total amount of 100 “course” points can be reached as follows

30 course points from the midterm
10 course points from the presentation of a theoretical exercise
20 course points for practical exercises
40 course points from the final exam

The 10 course points can already be gained by presenting a single theoretical exercise. There will be several practical exercises, which may be solved in groups. 60 course points suffice to pass the course. This is a 4-credit course.

To be more flexible in evaluation, the midterm exam gave up to 60 “midterm points”, i.e. if you have k midterm points, this gives you k/2 course points.

The practical exercises give the following amount of points:

Exercise 1: 2 practical points
Exercise 2: 4 practical points
Exercise 3: 2 practical points
Exercise 4: 4 practical points
Exercise 5: 2 practical points
Bonus project: 4 practical points

The total amount of practical points is 14 (even with the bonus project, you can not exceed 14 practical points = 20 course points), hence k practical points give you 20*min(k,14)/14 many course points.

A temporary list of reached points, can be found here.

Schedule

Lectures: Wednesday, 14:15-15:45, MA A3 31

(First Lecture: 16.09.09)

Exercise sessions: (First Exercise session: 30.09.09)

Wednesday, 16:00-17:30, MA A3 31
Thursday, 17:00-18:30, MA A1 10

Midterm exam: November 11, during lecture

Final exam: January 16, 2010; 8:15h-10:15h in room MA A3 30. See the following announcement for more details.

Slides

September, 16
September, 23
September, 30
October, 7
October, 14
October, 21
October, 28
November, 4 (updated writeup for ellipsoid method)
November, 18
November, 25
December, 2
December, 9 (updated)
December, 16

Exercises

The exercises will take place as follows: For the i-th exercise sheet the students are supposed to solve the assignments in the tutorial in week 2i+1. The solutions will be discussed in week 2i+2.