Mean Variance Optimization of Non-Linear Systems and Worst-Case Analysis

Posted: 7 Jun 2006

See all articles by Panayiotis Parpas

Panayiotis Parpas

Imperial College London

Berc Rustem

Imperial College London - Department of Computing; Center for Financial Studies (CFS)

Volker Wieland

University of Frankfurt

Stan Zakovic

Imperial College London - Accounting, Finance, and Macroeconomics

Date Written: January 13, 2006

Abstract

In this paper, we consider expected value, variance and worst-case optimization of nonlinear models. We present algorithms for computing optimal expected values, and variance, based on iterative Taylor expansions. We establish convergence and consider the relative merits of policies beaded on expected value optimization and worst-case robustness. The latter is a minimax strategy and ensures optimal cover in view of the worst-case scenario(s) while the former is optimal expected performance in a stochastic setting. Both approaches are used with a macroeconomic policy model to illustrate relative performances, robustness and trade-offs between the strategies.

JEL Classification: C61, E43

Suggested Citation

Parpas, Panayiotis and Rustem, Berc and Wieland, Volker and Zakovic, Stan, Mean Variance Optimization of Non-Linear Systems and Worst-Case Analysis (January 13, 2006). CFS Working Paper No. 2006/03, Available at SSRN: https://ssrn.com/abstract=906810

Panayiotis Parpas (Contact Author)

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Berc Rustem

Imperial College London - Department of Computing ( email )

South Kensington campus
London SW7 2AZ
United Kingdom
+44 20 7594 8345/8370 (Phone)
+44 20 7581 8024 (Fax)

HOME PAGE: http://www.doc.ic.ac.uk/old-doc/berc.html

Center for Financial Studies (CFS)

Gr├╝neburgplatz 1
Frankfurt am Main, 60323
Germany

Volker Wieland

University of Frankfurt ( email )

House of Finance
Gr├╝neburgplatz 1
Frankfurt am Main, D-60323
Germany
+49 69 798 33805 (Phone)
+49 69 798 33907 (Fax)

HOME PAGE: http://www.volkerwieland.com

Stan Zakovic

Imperial College London - Accounting, Finance, and Macroeconomics ( email )

South Kensington campus
London SW7 2AZ
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
684
PlumX Metrics