Numerical Methods and Optimization in Finance

Numerical Methods and Optimization in Finance, Second Edition presents tools for computational finance, with an emphasis on optimization techniques, specifically heuristics. New chapters include a self-contained tutorial on using and implementing heuristics and an explanation of software used for testing portfolio-selection models. Every chapter has been updated and reviewed for accuracy. The book's authors concentrate on practical, computational applications of financial theory that have been turned into software and empirically tested. For every topic, they discuss implementation methods. Algorithms are stated in pseudocode, with MATLAB or R code provided for all important examples.

• Introduces numerical methods to readers with economics backgrounds
• Emphasizes core simulation and optimization problems
• Includes MATLAB and R, provides sample code in the text, and makes all code freely available

Students (Master or PhD level) and researchers in programs on quantitative and computational finance, and also practitioners in banks and other financial companies

1. Introduction

I. Fundamentals
2. Numerical Analysis in a Nutshell
3. Linear Equations and Least Squares Problems
4. Finite Difference Methods
5. Binomial Trees

II. Simulation
6. Generating Random Numbers
7. Modeling Dependencies
8. A Gentle Introduction to Financial Simulation
9. Financial Simulation at Work: Some Case Studies

III. Optimization
10. Optimization Problems in Finance
11. Basic Methods
12. Heuristic Methods in a Nutshell
13.: Heuristic Methods: A Tutorial
14. Portfolio Optimization
15. Backtesting Investment Strategies
16. Econometric Models
17. Calibrating Option Pricing Models