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Three Essays on Stochastic Optimization Applied in Financial Engineering and Inventory Management

dc.contributor.advisorFu, Michael Cen_US
dc.contributor.authorZhang, Huijuen_US
dc.date.accessioned2007-06-22T05:32:44Z
dc.date.available2007-06-22T05:32:44Z
dc.date.issued2007-04-19
dc.identifier.urihttp://hdl.handle.net/1903/6739
dc.description.abstractStochastic optimization methods are now being widely used in a multitude of applications. This dissertation includes three essays on applying stochastic optimization methods to solve problems in inventory management and financial engineering. Essay one addresses the problem of simultaneous price determination and inventory management. Demand depends explicitly on the product price p, and the inventory control system operates under a periodic review (s, S) ordering policy. To minimize the long-run average loss, we derive sample path derivatives that can be used in a gradient-based algorithm for determining the optimal values of the three parameters (s, S, p) in a simulation-based optimization procedure. Numerical results for several optimization examples via different stochastic algorithms are presented, and consistency proofs for the estimators are provided. Essay two considers the application of stochastic optimization methods to American-style option pricing. We apply a randomized optimization algorithm called Model Reference Adaptive Search (MRAS) to pricing American-style options through parameterizing the early exercise boundary. Numerical results are provided for pricing American-style call and put options written on underlying assets following geometric Brownian motion and Merton jump-diffusion processes. We also price American-style Asian options written on underlying assets following geometric Brownian motion. The results from the MRAS algorithm are compared with the cross-entropy (CE) method, and MRAS is found to be an efficient method. Essay three addresses the problem of finding the optimal importance sampling measure when simulating portfolios of credit risky assets. We apply a gradient-based stochastic approximation method to find the parameters in the minimum variance problem when importance sampling is used. The gradient estimator is obtained under the original measure. We also employ the CE method to solve the same variance minimization problem. Numerical results illustrating the variance reduction are presented for the estimation of the portfolios' expected loss, unexpected loss and quantiles.en_US
dc.format.extent987840 bytes
dc.format.mimetypeapplication/pdf
dc.language.isoen_US
dc.titleThree Essays on Stochastic Optimization Applied in Financial Engineering and Inventory Managementen_US
dc.typeDissertationen_US
dc.contributor.publisherDigital Repository at the University of Marylanden_US
dc.contributor.publisherUniversity of Maryland (College Park, Md.)en_US
dc.contributor.departmentBusiness and Management: Decision & Information Technologiesen_US
dc.subject.pqcontrolledBusiness Administration, Generalen_US
dc.subject.pqcontrolledOperations Researchen_US
dc.subject.pqcontrolledBusiness Administration, Bankingen_US
dc.subject.pquncontrolledinventoryen_US
dc.subject.pquncontrolledAmerican optionen_US
dc.subject.pquncontrolledcredit risken_US


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