Practical Financial Optimization: A Library of GAMS Models

Preface

Where the spirit does not work with the hand, there is no art.

 

Leonardo Da Vinci

This is a book about art: the art of modeling financial decision making using optimization. The science of financial optimization models has been introduced in the companion volume by S.A. Zenios, Practical Financial Optimization: Decision Making for Financial Engineers (Blackwell Publishing, Cambridge, MA, 2007), henceforth abbreviated as PFO.

In this book the reader’s spirit works closely with his hand to create models. The reader is expected to have an understanding of creativity and to possess the skills and tools necessary to illustrate his or her ideas of business reality, finance concepts, and market expectations. The reader who has an unorthodox understanding of the problem is able to create a model that can act as a portal representing the realities of his or her own specific problem. This portal enables the user to perceive things from a decision maker’s perspective, rather than from a broad and abstract perspective. In any event, the model does not teach a precise way of perception. The decision maker must maintain open-mindedness in order to question what has been created by the model, and how that interacts and relates with the decision making problem at hand. The decision maker comes to realize the great number of possibilities that are layered within any model.

Of course these possibilities must be well grounded in currently accepted theories of financial economics, while at ...