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With Simulation and Optimization in Finance and its companion Web site, authors Dessislava Pachamanova and Frank Fabozzi explain the application of these tools for both financial professionals and academics in this field.
Divided into five comprehensive parts, this reliable guide provides an accessible introduction to the simulation and optimization techniques most widely used in finance, while offering fundamental background information on the financial concepts surrounding these techniques.
In addition, the authors use simulation and optimization as a means to clarify difficult concepts in traditional risk models in finance, and explain how to build financial models with certain software. They review current simulation and optimization methodologies—along with the available software—and proceed with portfolio risk management, modeling of random processes, pricing of financial derivatives, and capital budgeting applications.
Designed for practitioners and students, this book:
Contains a unique combination of finance theory and rigorous mathematical modeling emphasizing a hands-on approach through implementation with software
Highlights both classical applications and more recent developments such as pricing of mortgage-backed securities
Includes models and code in both spreadsheet-based software (@RISK, Solver, and VBA) and mathematical modeling software (MATLAB)
Incorporates a companion Web site containing ancillary materials, including the models and code used in the book, appendices with introductions to the software, and practice sections
And much more
Filled with in-depth insights and practical advice, Simulation and Optimization in Finance offers essential guidance on some of the most important topics in financial management.
This practical guide is divided into five informative parts:
Part I, Fundamental Concepts, provides insights on the most important issues in finance, simulation, optimization, and optimization under uncertainty
Part II, Portfolio Optimization and Risk Measures, reviews the theory and practice of equity and fixed income portfolio management, from classical frameworks to recent advances in the theory of risk measurement
Part III, Asset Pricing Models, discusses classical static and dynamic models for asset pricing, such as factor models and different types of random walks
Part IV, Derivative Pricing and Use, introduces important types of financial derivatives, shows how their value can be determined by simulation, and discusses how derivatives can be employed for portfolio risk management and return enhancement purposes
Part V, Capital Budgeting Decisions, reviews capital budgeting decision models, including real options, and discusses applications of simulation and optimization in capital budgeting under uncertainty
Supplemented with models and code in both spreadsheet-based software (@RISK, Solver, and VBA) and mathematical modeling software (MATLAB), Simulation and Optimization in Finance is a well-rounded guide to a dynamic discipline.