Introduction to financial optimization: Mathematical Programming Special Issue

Optimization models are effective for solving significant problems in finance, including long-term financial planning and other portfolio problems. Prominent examples include: asset-liability management for pension plans and insurance companies, integrated risk management for intermediaries, and long-term planning for individuals. Several applications will be briefly mentioned. Three distinct approaches are available for solving multi-stage financial optimization models: 1) dynamic stochastic control, 2) stochastic programming, and 3) optimizing a stochastic simulation model. We briefly review the pros and cons of these approaches, discuss further applications of financial optimization, and conclude with topics for future research. Published online December 15, 2000