International Journal of Nonlinear Analysis and Applications

A new bond portfolio optimization model as two-stage stochastic programming problems in U.S. market

Document Type : Research Paper

Authors

1 Department of Operation Research and Int. Tech., Collage of Computer Sciences and Mathematics, University of Mosul, Iraq

2 Department of statistic, Collage of Administration and Economics, University of Bagdad, Iraq

Abstract

We formulate a new bond portfolio optimization model as a two-stage stochastic programming problem in which a decision maker can optimize the cost of bond portfolio selection while deciding which bonds to sell, which bonds to hold, and which bonds to buy from the market, as well as determine the quantity of additional cash in period t under different scenarios and varying assumptions, The model proved its efficiency by finding the optimal values and giving an investment plan that, it will reduce the cost of the portfolio.

Keywords

[1] M. Albareda-Sambola, E. Fernandez and F. Saldanha-da-Gama, The facility location problem with Bernoulli demands, Omega 39(3) (2011) 335–345.
[2] N. A. Alreshidi, M. Mrad, E. Subasi and M. Subasi, Two-stage bond portfolio optimization and its application to Saudi Sukuk Market, Ann. Oper. Res. 288 (2020) 1–43.
[3] A. Alonso-Ayuso, L. F. Escudero, A. Garin, M. T. Ortuno and G. Perez, On the product selection and plant dimensioning problem under uncertainty, Omega 33(4) (2005) 307–318.
[4] A. Ben-Tal, L. El Ghaoui and A. Nemirovski, Robust Optimization, Princeton University Press, 2009.
[5] D. Bertsimas, D. Brown and C. Brown, Theory and of Robust optimization, Soc. Indust. Appl. Math. 53(3) 2011 464–501.
[6] J.R. Birge and F. Louveaux, Introduction to Stochastic Programming, Springer, 1997.
[7] C.I. Fabian, Handling CVaR objectives and constraints in two-stage stochastic models, European J. Oper. Res. 191(3) (2008) 888–911.
[8] T. Homem-de-Mello and G. Bayraksan, Monte Carlo sampling-based methods for stochastic optimization, Surv. Oper. Res. Manag. Sci. 19(1) (2014) 56–85.
[9] S. Nickel, F. Saldanha-da-Gama and H.-P. Ziegler, A multi-stage stochastic supply network design problem with financial decisions and risk management, Omega 40(5) (2012) 511–524.
[10] G.Ch. Pflug and W. Romisch. Modeling, Measuring and Managing Risk, World Scientific, Singapore, 2007.
[11] A. Prekopa, Stochastic Programming, Springer, Dordrecht, Netherlands, 1995.
[12] N.V. Sahinidis, Optimization under uncertainty: state-of-the-art and opportunities, Comput. Chem. Engin. 28 (6) 2004 971–983.
[13] A. Shapiro, D. Dentcheva and A. Ruszczynski, Lectures on Stochastic Programming: Modeling and Theory, Soc. Industrial Math. 9 (2009).
[14] A. Shapiro and A. Philpott, A Tutorial on Stochastic Programming, March 21, 2007.
International Journal of Nonlinear Analysis and Applications
Volume 13, Issue 1
March 2022
Pages 1545-1563
  • Receive Date: 09 September 2021
  • Revise Date: 06 October 2021
  • Accept Date: 27 October 2021