FE 501 Optimization Models in Economics and Finance

Fall 2014, Ilhan OR

Course Description
Overview of optimization concepts: examples from linear programming, non-linear
programming, and integer programming. Linear programming: modeling , solution procedures,
duality, sensitivity analysis; economic interpretations. Integer Programming: modeling
possibilities through integer variables; solution procedures. Nonlinear Programming: modeling
possibilities, unconstrained & constrained cases; special cases - quadratic programming;
heuristic optimization.
Modeling-analysis-decision loop in financial and economic practice; modeling and treatment of
risk; applications in finance and economics; discrete optimization models in finance;
applications in portfolio management; realistic examples from finance by using of linear and
nonlinear programming software.

Course Outline
1. Week Sept.23 Introduction; Linear Optimization: Basics
2. Week Sept.30 Linear Optimization: Applications to Finance & Economics.
3. Week Oct. 14 Duality and Sensitivity.
4. Week Oct. 21 Integer Optimization: Basics; Appl. to Finance & Economics
6. Week Nov. 04 Excel-Solver; GAMS Optimization Package.
7. Week Nov. 11 Nonlinear Optimization/Quadratic Programming: Basics &Applications
7. Week Nov. 15 Midterm Exam.
8. Week Nov. 18 Exam Review. Modeling & Treatment of Risk.
9. Week Nov. 25 Intro Mean-Variance Portfolio Theory.
Delineating Efficient Portfolios.
10. Week Dec. 02 Delineating Efficient Portfolios.
11. Week Dec. 09 Techniques for Calculating the Efficient Frontier.
12. Week Dec. 16 General Mean-Variance Portfolio Model with Constraints;
Other Applications in the Finance Sector: Insurance Portfolios.
13. Week Dec. 23 The Single Index Model.

Textbook
Modern Portfolio Theory & Investment Analysis (E. Elton, M. Gruber, S. Brown, W.
Goetzmann, 8
th
Ed., 2010)
Operations Research, Lecture Notes (Ilhan Or, 2013)
References
Operations Research, An Introduction (H. Taha, Prentice Hall, 9
th
Ed., 2010)

Teaching Assistant
Merve Gren, Research Assistant, Industrial Engineering Department, Bo!azii University.
Room: Kat2, BUFAIM Lab; Tel: 212 359 7310; e-mail merve.goren@boun.edu.tr
Ycel Grel, Research Assistant, Industrial Engineering Department, Bo!azii University.
Room: Kat 2, Ergolab; Tel: 212 359 7168; e-mail yucel.gurel@boun.edu.tr
Web Page:http://moodle.ie.boun.edu.tr/
Enrollment Key: fe501fall14
Grading
Midterm % 32 36; Assignments % 15 20; FINAL % 48 54
Class Hours/Classroom: TTT 11 12 13; MF/VYKM 3