optimal control models in finance a new computational approach

[...]... is necessary to complete the research agenda Optimal control models have applications to a wide range of different areas in finance: optimal portfolio choice, optimal corporate finance, financial engineering, stochastic finance, valuation, optimal consumption and investment, financial planning, risk management, cash management, etc (Tapiero [81, 1998]; Sengupta and Fanchon [80, 1997]; Ziemba and Vickson... Chapter 6 gives the conclusion of this research Optimal control methods have high potential applications to various areas in finance The present study has enhanced the state of the art for applying optimal control methods, especially the bang-bang control method, for financial modeling in a real life context Chapter 1 OPTIMAL CONTROL MODELS IN FINANCE Optimal control theory has been important in finance. .. computational approaches These extensions will make dynamic financial optimization models relatively more stable for applications to academic and practical exercises in the areas of financial optimization, forecasting, planning and optimal social choice This book will be useful to graduate students and academics in finance, mathematical economics, operations research and computer science Professional practitioners... this chapter, a typical general financial optimal control model is given in Section 1.1 to explain the formula of the optimal control problems and their accompanying optimal control theories In addition, some classical concepts in operations research and famous standard optimal control theories are introduced in Section 1.2-1.5, and a brief description on how they are applied in financial optimal control. .. discounting; (iii) the structure of dynamic systems OPTIMAL CONTROL MODELS IN FINANCE 4 under modeling (different types – linear and non-linear); and (iv) the initial and terminal conditions – various types in different models Optimal control models in finance can take different forms including the following: bang-bang control, deterministic and stochastic models, finite and infinite horizon models, aggregative... The transformation of subdivision of time interval technique is used to gain a more accurate gradient Different sequences of control are then studied The computational algorithms are applied to a non-linear optimal control problem of an optimal financing model, which was original introduced by Davis and Elzinga [22, 1970] In that paper, Davis and Elzinga had an analytical solution for the model In this... is normative social choice for optimal financial decision making The optimal control models in this book have this application as well These models specify the welfare maximizing financial resource allocation in the economy subject to the underlying dynamic financial system Chapter 1 is an introduction to the optimal control problems in finance and the classical optimal control theories, which have been... can also be used to explain a control: where the optimal control only takes two possible cases or depending on the initial value of the control This control is also a bang-bang control In this research, only bang-bang optimal control models in finance are considered Sometimes, a singular arc (see Section 1.5) might occur following a bang-bang control in a particular situation So the possibility of a. .. are indicated, and as a result, a part of the algorithms are modified so as to obtain the global optimum eventually The computing results were obtained, and are presented in graphical forms for future analysis and improvement here This work is also compared with other contemporary research The advantages and disadvantages of them are analyzed The STV approach provides an improved computational approach. .. deterministic and stochastic, is probably one of the most crucial areas in finance given the time series characteristics of financial systems’ behavior It is also a fast growing area of sophisticated academic interest as well as practice using analytical as well as computational techniques However, there are some limits in some areas in the existing literature in which improvements are needed It will facilitate . Florida, U.S .A. OPTIMAL CONTROL MODELS IN FINANCE A New Computational Approach by PING CHEN Victoria University, Melbourne, Australia SARDAR M.N. ISLAM Victoria University, Melbourne, Australia Springer eBook. computational algorithms are applied to a non-linear optimal control problem of an optimal financing model, which was original introduced by Davis and Elzinga [22, 1970]. In that paper, Davis and. areas in finance given the time series characteristics of financial systems’ behavior. It is also a fast growing area of sophisticated academic interest as well as practice using analytical as