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Some Finance Problems Solved with Nonsmooth Optimization Techniques

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  • R. B. Vinter

    (Imperial College)

  • H. Zheng

    (Imperial College)

Abstract

The purpose of this paper is to draw the attention of the nonsmooth analysis and mathematical finance communities to the scope for applications of nonsmooth optimization to finance by studying in detail two illustrative examples. The first concerns the maximization of a terminal utility function in an investment problem with transaction costs. The second concerns the calculation of the duration of a bond for general term structures of interest rates. The emphasis is on methodology.

Suggested Citation

  • R. B. Vinter & H. Zheng, 2003. "Some Finance Problems Solved with Nonsmooth Optimization Techniques," Journal of Optimization Theory and Applications, Springer, vol. 119(1), pages 1-18, October.
    • Handle: RePEc:spr:joptap:v:119:y:2003:i:1:d:10.1023_b:jota.0000005037.49022.1a
    DOI: 10.1023/B:JOTA.0000005037.49022.1a
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    References listed on IDEAS

    as
    1. Cooper, I. A., 1977. "Asset Values, Interest-Rate Changes, and Duration," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(5), pages 701-723, December.
    2. Zheng, H. & Thomas, L.C. & Allen, D.E., 2001. "The Duration Derby: A Comparison of Duration Based Strategies in Asset Liability Management," Papers 01-176, University of Southampton - Department of Accounting and Management Science.
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    Citations

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    Cited by:

    1. Ilya Shvartsman, 2012. "Necessary Optimality Conditions in Discrete Nonsmooth Optimal Control," Journal of Optimization Theory and Applications, Springer, vol. 153(3), pages 578-586, June.
    2. Harry Zheng, 2007. "Macaulay durations for nonparallel shifts," Annals of Operations Research, Springer, vol. 151(1), pages 179-191, April.

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