Solving robust optimization models in finance

Abstract

Leading international financial firms are applying multi-stage stochastic programs for managing asset-liability risk over extended time periods. Prominent examples include: Towers Perrin, State Farm Insurance, Falcon Asset Management, Frank Russell and Unilever. The asset-liability management systems assist pension plan investors, banks, insurance companies and other leveraged institutions. Wealthy individuals can benefit by developing careful risk management strategies. The advantages of integrating assets and liabilities are discussed along with a brief comparison of alternative modeling frameworks. We describe the advantages of high-performance computers for solving these difficult nonlinear robust optimization problems.