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Risk-Return Analysis, Volume 2: The Theory and Practice of Rational Investing by Harry M. Markowitz

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7

MODELING DYNAMIC SYSTEMS

INTRODUCTION

As noted in the previous chapter, operations research (OR) techniques used to assist investment decisions need to include simulation as well as optimization procedures. For example, a half-dozen uses of financial simulation to be found in this volume are:

  1. The GuidedChoice (GC) decision support system (DSS) includes simulation analysis to estimate the likely consequences of decisions by the investor being served.
  2. Endnote 3 of Chapter 6 refers to the Kim and Markowitz (1989) simulator. This is a market simulator consisting of two types of investors: rebalancers and portfolio insurers. The purpose of this simulator, and the analyses performed with it, was to help settle a dispute between Harry Markowitz ...

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