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Simulation and Optimization in Finance: Modeling with MATLAB, @Risk, or VBA [Hardcover]

Dessislava Pachamanova , Frank J. Fabozzi

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Book Description

Oct. 5 2010 Frank J. Fabozzi Series (Book 173)
An introduction to the theory and practice of financial simulation and optimization

In recent years, there has been a notable increase in the use of simulation and optimization methods in the financial industry. Applications include portfolio allocation, risk management, pricing, and capital budgeting under uncertainty.

This accessible guide provides an introduction to the simulation and optimization techniques most widely used in finance, while at the same time offering background on the financial concepts in these applications. In addition, it clarifies difficult concepts in traditional models of uncertainty in finance, and teaches you how to build models with software. It does this by reviewing current simulation and optimization methodology-along with available software-and proceeds with portfolio risk management, modeling of random processes, pricing of financial derivatives, and real options applications.

  • Contains a unique combination of finance theory and rigorous mathematical modeling emphasizing a hands-on approach through implementation with software
  • Highlights not only classical applications, but also more recent developments, such as pricing of mortgage-backed securities
  • Includes models and code in both spreadsheet-based software (@RISK, Solver, Evolver, VBA) and mathematical modeling software (MATLAB)

Filled with in-depth insights and practical advice, Simulation and Optimization Modeling in Finance offers essential guidance on some of the most important topics in financial management.


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Product Details


Product Description

From the Inside Flap

In recent years, there has been a notable increase in the use of simulation and optimization methods in risk management, portfolio allocation, asset pricing, derivatives pricing, and capital budgeting under uncertainty.

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.

From the Back Cover

Engaging and accessible, this book and its companion Web site provide an introduction to the simulation and optimization techniques most widely used in finance, while, at the same time, offering essential information on the financial concepts surrounding these applications.

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.


Inside This Book (Learn More)
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Front Cover | Copyright | Table of Contents | Excerpt | Index | Back Cover
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Customer Reviews

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Amazon.com: 4.0 out of 5 stars  4 reviews
6 of 6 people found the following review helpful
3.0 out of 5 stars Helpful book but many significant mistakes April 15 2012
By Max - Published on Amazon.com
Format:Hardcover
I am currently studying a class based on this textbook. Very interesting and helpful textbook. However, the textbook contains many mistakes both in text, formulas, and in MATLAB codes (in every single chapter). That is why I give 3 stars. Perhaps, the textbook was not properly proofread before it was published. I remember the price was about $160 for the textbook 3 months ago and now it is just $79. Would not recommend this book for beginners.
7 of 8 people found the following review helpful
5.0 out of 5 stars A thorough theory and practitioner's guide to Simulation and Optimization methods in finance! Jan. 23 2011
By S. Krishnamurthy - Published on Amazon.com
Format:Hardcover
Prof.Pachamanova has written one of the best introductions to Simulation and Optimization methods in finance. This book provides a strong theoretical foundation and the website provides a lot of cases and useful hands-on exercises to apply and understand the concepts explained in the book. This book is highly recommended for business and engineering students who are interested in a career in the quantitative finance industry. This book is also recommended to new entrants to the quant finance industry and to financial practitioners who primarily use Excel for quantitative modeling but are interested in building more rigorous models using VBA, @RISK and MATLAB.

This book has the optimal combination of theory and practice. It starts out with a through introduction to statistics, finance and optimization concepts. In the second part, the book describes portfolio optimization theory and applications in equity and fixed income markets. The third part focuses on asset pricing models discussing classical and dynamic models. The fourth section mainly focuses on derivative pricing and provides a very good introduction to Monte-Carlo simulation methods. Topics of current interest such as pricing MBS products are also described in this section. Part five focuses on capital budget decisions and has a very good introduction to real options. The Software hints in each chapter and the supplementary materials on the website help students and practitioners to immediately try out examples and fortify their knowledge.

Prof.Pachamanova's didactic approach and the vast coverage of topics makes this book a must have for new quantitative analysts, business students and engineers interested in a career in finance. As a Financial Modeling consultant who works at MathWorks (the maker of MATLAB), I get a lot of questions on recommendations for books to apply financial theory using computational tools. This book is a gem and would makes great addition to your quantitative investing library.

Full Disclosure: I took a Statistics class with Prof.Pachamanova during my MBA program at Babson College
3.0 out of 5 stars Simulation and Optimization in Finance Feb. 28 2014
By Gordon - Published on Amazon.com
Format:Hardcover
Only 3 stars because the book is good but poor in content especially for the applications.
Each theme is treated with superficiality. More properly this book is an introduction.
5.0 out of 5 stars Definitely worth a read Feb. 3 2014
By D. Bhaduri - Published on Amazon.com
Format:Hardcover|Verified Purchase
One of the best portfolio management texts I've come across. Great balance between the practical context and the technical details necessary to implement. Would have appreciated some exercises to work through (especially for the more advanced chapters.)

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