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Defining the Modeling Domain

In: Financial Models and Simulation

Author

Listed:
  • Dimitris N. Chorafas

Abstract

Information about money and the ability to manage financial resources are every bit as important as money itself. As bankers know from experience, the overriding effort is that of locating the best or most favorable degree, amount, condition or product mix. This constitutes an optimum, under an acceptable level of risk. The notion of optimization is present in all sciences and many tools in mathematics address this issue. But in terms of the goals we are after, from one domain to another the notion of an optimum varies: In biology, for instance, an optimum is the amount of light, heat, moisture and food best promoting reproduction and growth. In finance, it is the most favorable choice which we make in order to balance risk and return — controlling the former and enhancing the latter.

Suggested Citation

  • Dimitris N. Chorafas, 1995. "Defining the Modeling Domain," Palgrave Macmillan Books, in: Financial Models and Simulation, chapter 3, pages 43-61, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-37483-6_3
    DOI: 10.1057/9780230374836_3
    as

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