IE 444

Operations Research in Finance

Bilkent University, Spring 2008

Instructor: Jnos D. Pintr, Department of Industrial Engineering, Bilkent University Contact: jdpinter@bilkent.edu.tr Office hours: EA323, Tue 16:00-17:30, Thu 16:00-17:30 Lectures: EB203, Monday 10:40-11:30, Thursday 08:40-10:30 Course Outline This course provides an introduction to Operations Research (O.R.) in Finance. We review the basic financial concepts and related key issues of financial management. This is followed by a discussion of relevant optimization models and solution methods, including due consideration to computational aspects. The introduced modeling and optimization tools will be illustrated by relevant examples and illustrative case studies. The following topics will be covered: Basic concepts and key issues in financial management Operations Research, optimization models Linear optimization Convex quadratic optimization Convex nonlinear optimization Non-convex nonlinear (global) optimization Combinatorial optimization Optimization with mixed (integer-continuous) variables Stochastic optimization Modeling environments and solver engines in O.R. applications Financial applications and illustrative case studies of the optimization problem types listed above

Upon completing this course, attendees will be able to understand, actively develop and solve a range of optimization models pertinent to financial management. Note: JDP will also teach a global optimization course; possible (moderate) overlap with that course in relation to discussing some optimization model forms and solution techniques.

Lecture Notes and Presentations All materials listed here will be made available to course participants at the course webpage, possibly including also other e-materials as needed. Some key references recommended for reading: Cornuejols, G. (2003) Optimization Methods in Finance. Nielsen, S.S. (1998) Mathematical Modeling and Optimization with Applications in Finance. Pinar, M.C. (2006) Operations Research in Finance. Ttnc, R.H. (2003) Optimization in Finance. We will follow the lecture notes by Ttnc, with additional notes based on the lecture notes and articles by Cornuejols, Luenberger, Nielsen, Pinar, Pintr, Uryasev, and others. Additional information: Books, professional journals, articles, software, and other information available from the Internet. Consult e.g. the following sources as/when needed: Wikipedia, the Decision Tree for Optimization Software, the Mathematical Programming Glossary, and MathWorld. A finalized set of lecture notes will be made available in pdf format. Required (Recommended) Background Introduction to economics Basics of calculus, linear algebra, probability theory and statistics Basic introduction to operations research Software usage experience (such as AIMMS, AMPL, GAMS, Excel, LINGO, Maple, Matlab Mathematica, MPL, or XpressMP) Exams and Grading Mid-term exams: Weeks 5, 10; Final exam: Week 14 Grading: classroom attendance and participation ~ 10%; project work ~ 20%, midterm exams each ~ 20 %, final exam ~ 40 %.