Dynamic optimization models in finance: Some extensions to the framework,  models, and computation

Bruce D. Craven; Sardar M. N. Islam

doi:10.3934/jimo.2014.10.1129

Article Contents

2014, Volume 10, Issue 4: 1129-1146. Doi: 10.3934/jimo.2014.10.1129

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Dynamic optimization models in finance: Some extensions to the framework, models, and computation

Bruce D. Craven^1, and
Sardar M. N. Islam^2,

1.
Department of Mathematics & Statistics, University of Melbourne, Victoria 3010
2.
Victoria University, P.O. Box 14428, Melbourne, Vic. 6001

Received: December 2012

Revised: January 2014

Published: October 2014

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Abstract

Both mathematical characteristics and computational aspects of dynamic optimization in finance have potential for extensions. Various proposed extensions are presented in this paper for dynamic optimization modelling in finance, adapted from developments in other areas of economics and mathematics. They show the need and potential for further areas of study and extensions in financial modelling. The extensions discussed and made concern (a) incorporation of the elements of a dynamic optimization model, (b) an improved model including physical capital, (c) some computational experiments. These extensions make dynamic financial optimisation relatively more organized, coherent and coordinated. These extensions are relevant for applications of financial models to academic and practical exercises. This paper reports initial efforts in providing some useful extensions; further work is necessary to complete the research agenda.

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Mathematics Subject Classification: 97M30.

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