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Numerical Methods and Optimization in Finance by Enrico Schumann, Dietmar Maringer, Manfred Gilli

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Chapter Ten

Optimization Problems in Finance

Publisher Summary

This chapter discusses financial optimization models in general and illustrates how models are set up, how they are solved, and how obtained solutions are evaluated. An optimization model consists of an objective function (also called the optimization criterion or goal function) and constraints. One can think of model building as a meta-optimization in which he/she tries to obtain the best possible results (or more realistically, good results; results that improve the current status) for the financial goals under the restrictions that the model remains empirically meaningful and can be solved. An alternative approach is the use of heuristic optimization techniques. Heuristics are a ...

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