Stochastic Optimization Methods in Finance and Energy

1. Front Matter

   Pages i-xxiii

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2. Financial Applications

   1. Front Matter

      Pages 1-1

      PDF

3. Financial application

   1. Using the Kelly Criterion for Investing

      • William T. Ziemba, Leonard C. MacLean

      Pages 3-20

   2. Designing Minimum Guaranteed Return Funds

      • Michael A.H. Dempster, Matteo Germano, Elena A. Medova, Muriel I. Rietbergen, Francesco Sandrini, Mike Scrowston

      Pages 21-42

   3. Performance Enhancements for Defined Benefit Pension Plans

      • John M. Mulvey, Thomas Bauerfeind, Koray D. Simsek, Mehmet T. Vural

      Pages 43-71

   4. Hedging Market and Credit Risk in Corporate Bond Portfolios

      • Patrizia Beraldi, Giorgio Consigli, Francesco De Simone, Gaetano Iaquinta, Antonio Violi

      Pages 73-98

   5. Dynamic Portfolio Management for Property and Casualty Insurance

      • Giorgio Consigli, Massimo di Tria, Michele Gaffo, Gaetano Iaquinta, Vittorio Moriggia, Angelo Uristani

      Pages 99-124

   6. Pricing Reinsurance Contracts

      • A. Consiglio, Domenico De Giovanni

      Pages 125-139

4. Energy Applications

   1. Front Matter

      Pages 141-141

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   2. A Decision Support Model for Weekly Operation of Hydrothermal Systems by Stochastic Nonlinear Optimization

      • Andres Ramos, Santiago Cerisola, Jesus M. Latorre, Rafael Bellido, Alejandro Perea, Elena Lopez

      Pages 143-161

   3. Hedging Electricity Portfolio for a Hydro-energy Producer via Stochastic Programming

      • Rosella Giacometti, Maria Teresa Vespucci, Marida Bertocchi, Giovanni Barone Adesi

      Pages 163-179

   4. Short-Term Trading for Electricity Producers

      • Chefi Triki, Antonio J. Conejo, Lina P. Garcés

      Pages 181-201

   5. Structuring Bilateral Energy Contract Portfolios in Competitive Markets

      • Antonio Alonso-Ayuso, Nico di Domenica, Laureano F. Escudero, Celeste Pizarro

      Pages 203-226

   6. Tactical Portfolio Planning in the Natural Gas Supply Chain

      • Marte Fodstad, Kjetil T. Midthun, Frode Rømo, Asgeir Tomasgard

      Pages 227-252

   7. Risk Management with Stochastic Dominance Models in Energy Systems with Dispersed Generation

      • Dimitri Drapkin, Ralf Gollmer, Uwe Gotzes, Frederike Neise, Rüdiger Schultz

      Pages 253-271

   8. Stochastic Equilibrium Models for Generation Capacity Expansion

      • Andreas Ehrenmann, Yves Smeers

      Pages 273-310

5. Theory and Computation

   1. Front Matter

      Pages 311-311

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   2. Scenario Tree Generation for Multi-stage Stochastic Programs

      • Holger Heitsch, Werner Römisch

      Pages 313-341

   3. Approximations for Probability Distributions and Stochastic Optimization Problems

      • Georg Ch. Pflug, Alois Pichler

      Pages 343-387

   4. Comparison of Sampling Methods for Dynamic Stochastic Programming

      • Michael A.H. Dempster, Elena A. Medova, Yee Sook Yong

      Pages 389-425

This volume presents a collection of contributions dedicated to applied problems in the financial and energy sectors that have been formulated and solved in a stochastic optimization framework. The invited authors represent a group of scientists and practitioners, who cooperated in recent years to facilitate the growing penetration of stochastic programming techniques in real-world applications, inducing a significant advance over a large spectrum of complex decision problems.

After the recent widespread liberalization of the energy sector in Europe and the unprecedented growth of energy prices in international commodity markets, we have witnessed a significant convergence of strategic decision problems in the energy and financial sectors. This has often resulted in common open issues and has induced a remarkable effort by the industrial and scientific communities to facilitate the adoption of advanced analytical and decision tools. The main concerns of the financial community over the last decade have suddenly penetrated the energy sector inducing a remarkable scientific and practical effort to address previously unforeseeable management problems. Stochastic Optimization Methods in Finance and Energy: New Financial Products and Energy Markets Strategies aims to include in a unified framework for the first time an extensive set of contributions related to real-world applied problems in finance and energy, leading to a common methodological approach and in many cases having similar underlying economic and financial implications.

Part 1 of the book presents 6 chapters related to financial applications; Part 2 presents 7 chapters on energy applications; and Part 3 presents 5 chapters devoted to specific theoretical and computational issues.

• Energy Markets
• Equilibrium
• Finance
• Operations Research
• Stochastic Optimization

• , Department of Mathematics, Statistics, C, University of Bergamo, Bergamo, Italy

  Marida Bertocchi, Giorgio Consigli

• Dept. Pure Mathematics and, Mathematical Statistics, University of Cambridge, Cambridge, United Kingdom

  Michael A. H. Dempster

Giorgio Consigli is an Associate Professor, Department of Mathematics, Statistics and Computer Science at the University of Bergamo, Italy. He has been Director the University’s FinMonitor Research Centre since 2006, and was elected Member of the International Commission on Stochastic Programming (COSP) in 2007. He received his undergraduate degree in Economics (Honors) at the University of Rome, La Sapienza, where he also earned his MS in Banking, and earned his Ph.D. in Mathematics at Cambridge University, where he was supervised by M.A.H. Dempster. Marida Bertocchi has been a Full Professor in Financial Mathematics at University of Bergamo since 1992. She was Dean of the Faculty of Economics and Business Administration from November 1996 to October 2002 and scientific coordinator of the PhD program in "Computational Methods for Economic and Financial Forecasting and Decision Making" since 1992. She acted as a member of the accreditation committee for the Government of Cyprus. She was referee in the EEC Vth framework and she is currently referee for the EEC VIth framework. Michael A. H. Dempster is Professor Emeritus at the Statistical Laboratory, Centre for Mathematical Sciences, Cambridge University. He earned an MA at Oxford University and an MS and Ph.D. at Carnegie Mellon University, and founded the Centre for Financial Research at the Judge Business School at Cambridge. He is currently Managing Director of Cambridge Systems Associates, Ltd., a financial services consultancy. He is author, editor, or translator of 11 books, including the now out of print Large-Scale Linear Programming with George B. Dantzig and Markku Kallio (1981).

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