IE4909 - Analysis and Optimization Methods in Finance
Spring 2014 Syllabus
Instructor:
Bahar C
¸ avdar
Office: 208
e-mail: bcavdarATmetu.edu.tr
Office hours: TBA
Teaching Assistants:
Yasemin Limon
Office: 324
e-mail: limonATmetu.edu.tr
¨
M¨
uberra Ozmen
Office: 318
e-mail: mozmenATmetu.edu.tr
Class Room:
Class Times:
IE301
Tuesday, 9.40 - 12.30
Course Description: This course is intended to familiarize the students with basic terminology,
issues and optimization techniques in finance. Topics that will be covered include the following:
PART I
• Risk-Return analysis
– Utility theory and stochastic dominance
– Mean-Variance optimization, security market line
– Debt, equity and cost of capital
– Maximizing value of risky project cash flow alternatives
• Financial options analysis
– Financial options basics
– No-arbitrage, replication, risk-neutral valuation
– Lattice models for valuation of vanilla and exotic options
– Stochastic models of asset price dynamics
• Decision analysis
– Clarification of embedded project options
– Real option analysis via stochastic dynamic programming and risk-neutral valuation
– Decision-tree analysis
– Value of information via Bayesian updating and contingent decision-making
PART II
• Linear programming in asset/liability and asset pricing
• Quadratic optimization models in finance
• Integer programming
– Combinatorial auctions
– The lockbox problem
– Constructing an index fund
1
– Portfolio optimization with minimum transaction levels
• Stochastic programming
– Risk measures
– Minimizing CVaR
– Bond portfolio optimization
• Robust optimization
– Robust multi-period portfolio optimization
– Robust profit opportunities in risky portfolios
– Robust portfolio selection
– Relative robustness in portfolio selection
Prerequisites:
• IE251 and IE361
Reference Texts:
• Steve Hackman, Lecture Notes on Capital Investment Analysis.
• Gerard Cornuejols and Reha T¨
ut¨
unc¨
u, Optimization Methods in Finance 2007, Cambridge
university Press.
Grading:
• Class participation: 5%
• Homework: 25%
• Midterm exam: 30%
• Final exam: 40%
2
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IE4909 - Analysis and Optimization Methods in Finance Spring 2014