Contents
Part I Portfolio Optimization and Option Pricing
Threshold Accepting Approach to Improve Bound-based
Approximations for Portfolio Optimization
Daniel Kuhn, Panos Parpas, Ber¸c Rustem . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Preferences and Loss Aversion in Portfolio Optimization
Dietmar Maringer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Generalized Extreme Value Distribution and Extreme
Economic Value at Risk (EE-VaR)
Amadeo Alentorn, Sheri Markose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Portfolio Optimization under VaR Constraints Based on
Dynamic Estimates of the Variance-Covariance Matrix
Katja Specht, Peter Winker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Optimal Execution of Time-Constrained Portfolio
Transactions
Farid AitSahlia, Yuan-Chyuan Sheu, Panos M. Pardalos . . . . . . . . . . . . . . 95
Semidefinite Programming Approaches for Bounding Asian
Option Prices
Georgios V. Dalakouras, Roy H. Kwon, Panos M. Pardalos . . . . . . . . . . . . 103
The Evaluation of Discrete Barrier Options in a Path Integral
Framework
Carl Chiarella, Nadima El–Hassan, Adam Kucera . . . . . . . . . . . . . . . . . . . . 117

Part II Estimation and Classification
Robust Prediction of Beta
Marc G. Genton, Elvezio Ronchetti. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 147
Neural Network Modelling with Applications to Euro
Exchange Rates
Michele La Rocca, Cira Perna . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 163
Testing Uncovered Interest Rate Parity and Term Structure
Using Multivariate Threshold Cointegration
Jaya Krishnakumar, David Neto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 191
Classification Using Optimization: Application to Credit
Ratings of Bonds
Vladimir Bugera, Stan Uryasev, Grigory Zrazhevsky . . . . . . . . . . . . . . . . . . 211
Evolving Decision Rules to Discover Patterns in Financial
Data Sets
Alma Lilia Garc´ıa-Almanza, Edward P.K. Tsang, Edgar Galv´an-L´opez . . 239
Part III Banking, Risk and Macroeconomic Modelling
A Banking Firm Model: The Role of Market, Liquidity and
Credit Risks
Brenda Gonz´alez-Hermosillo, Jenny X. Li . . . . . . . . . . . . . . . . . . . . . . . . . . . 259
Identification of Critical Nodes and Links in Financial
Networks with Intermediation and Electronic Transactions
Anna Nagurney, Qiang Qiang . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273
An Analysis of Settlement Risk Contagion in Alternative
Securities Settlement Architectures
Giulia Iori, Christophe Deissenberg . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299
Integrated Risk Management: Risk Aggregation and
Allocation Using Intelligent Systems
Andreas Mitschele, Frank Schlottmann, Detlef Seese . . . . . . . . . . . . . . . . . . 317
A Stochastic Monetary Policy Interest Rate Model
Claudio Albanese, Manlio Trovato . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 343
Duali: Software for Solving Stochastic Control Problems in
Economics
David A. Kendrick, Marco P. Tucci, Hans M. Amman . . . . . . . . . . . . . . . . 393
Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 421