Financial Applications by Jitka Dupacova, Søren S. Nielsen, Werner Römisch, Nicole Gröwe-Kuska, Hercules Vladimirou

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aileen
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Financial Applications by Jitka Dupacova, Søren S. Nielsen, Werner Römisch, Nicole Gröwe-Kuska, Hercules Vladimirou

Post by aileen » 3 months ago

  • Jitka Dupacova:
  • Søren S. Nielsen:
    • Advanced Risk Management Using Stochastic Optimization
      • - Contents: Newsvendor Problem; Scenario Generation for the Newsvendor Problem; Two-Stage, Stochastic Program; Newsvendor as a Two-Stage, Stochastic Program; The "Underlying Process" vs. the "Decision Process"; Multistage Stochastic Programming; The WINVEST Case
      • - Abstract: Danish mortgage loans have several features that make them interesting: Short-term revolving adjustable-rate mortgages are available, as well as fixed-rate, 10-, 20- or 30-year annuities that contain embedded options (call and delivery options). The decisions faced by a mortgagor are therefore non-trivial, both in terms of deciding on an initial mortgage, and in terms of managing (rebalancing) it optimally. We propose a two-factor, arbitrage-free interest-rate model, calibrated to observable security prices, and implement on top of it a multi-stage, stochastic optimization program with the purpose of optimally composing and managing a typical mortgage loan. We model accurately both fixed and proportional transaction costs as well as tax effects. Risk attitudes are addressed through utility functions and through worst-case (min-max) optimization. The model is solved in up to 9 stages, having 19,683 scenarios. Numerical results, which were obtained using standard soft- and hardware, indicate that the primary determinant in chosing between adjustable-rate and fixed-rate loans is the short-long interest rate differential (i.e., term structure steepness), but volatility also matters. Refinancing activity is influenced by volatility and, of course, transaction costs.
      • WINVEST.pdf
        (125.33 KiB) Downloaded 30 times
        - The document contains the WINVEST case, an asset/liability management case.
      • Models.zip
        (27.95 KiB) Downloaded 28 times
    • Financial Modeling and Applications in Finance
  • Werner Römisch and Nicole Gröwe-Kuska:
  • Hercules Vladimirou:

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