The main two areas of financial mathematics are
portfolio optimization and option pricing. Portfolio
optimization deals with the determination of the best
investment strategy under certain constraints (e.g.
risk, liquidity or budget constraints). Option
pricing is concerned with valuation of derivative
contracts with complex payoffs, dependent on tradable
The first part of the book deals with realistic
problems of portfolio optimization. Thereby, the
expected outcome of a utility function under
constraints is maximised. For instance, the portfolio
is optimized with fixed income and consumption
constraints. The borrower rates of an investor depend
on his debt-ratio, but usually they are assumed to be
debt-independent. The author shows, how debt-ratio
dependent borrower rates can be incorporated into
portfolio optimization and how they affect the
optimal trading strategy. In the second part of the
book, some efficient methods to price Asian and
average options are introduced.
This book is adressed to quantitative researchers and
portfolio managers in insurance companies and
investment banks, as well as students of economics
and financial mathematics.