Three-day seminar given at the Central Bank of Thailand, December 18-20, 2015. The material is based on my book published by Blackwell-Wiley Finance, Practical Financial Optimization: Decision making for financial engineers. Slides are available upon request (free).

1. Financial Optimization for
Risk Management
Short course for Bank of Thailand, Dec. 2015
Professor Stavros A. ZENIOS
University of Cyprus and the Wharton Financial Institutions Center
INTRODUCTION
This short course will familiarize students with state-of-the-art optimization models as they
apply to financial risk management. Special focus will be placed on planning under
uncertainty using scenario optimization and multi-period stochastic programming models.
We will also discuss applications to credit risk portfolio management and international asset
allocation, and the integration of hedging decisions in the optimal asset allocation.
• Course Reading Material:
S.A. Zenios, Practical Financial Optimization: Decision making for financial engineers,
Blackwell Publishing, Cambridge, 2007.
A. Consiglio, S. Nielsen and S.A. Zenios, Practical Financial Optimization: A library of GAMS
models, Wiley Finance, 2009. (Software on-line http://www.gams.de/finlib/libhtml/ )
• Additional Recommended books and papers:
Zenios, S.A. and W.T. Ziemba (editors), Handbook of Asset and Liability Management, Vol.
1 (Theory) and Vol. 2 (Case studies). Handbooks in Finance, Elsevier Science, 2006, 2007.
Mulvey, J.M. and S.A. Zenios, Capturing the correlations of fixed income securities,
Management Science, Vol. 40, No. 10 (Oct., 1994), pp. 1329-1342
Consiglio, A. and S.A. Zenios, ``Risk Management Optimization for Sovereign Debt
Restructuring", The Wharton School Financial Institutions Centre Working Paper No. 14-
10, August 2014. http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2478380
Consiglio, A. and S.A. Zenios, Greek debt sustainability: the devil is in the tails, Vox.eu
CEPR Policy Poartal, August 2015. http://www.voxeu.org/article/greek-debt-
sustainability-devil-tails

2. 2
LECTURE SCHEDULE
Day 1
0. Introduction to risk management
- Enterprise-wide risk management
- Risk measures for fixed income, equities and coherent risk measures
- Convergence of risk measures for fixed income and equities: capturing correlations
- Scenarios and holding period returns
- Course overview
1. Mean-variance optimization
- Canonical formulations and extensions
- Incorporating liabilities
- Factor Models of Return
2. Factor Immunization for Corporate Bonds
3. Scenario optimization
- Mean-absolute deviation
- Tracking models
- Regret models
- Expected utility optimization
2nd
Day
4. Optimization of coherent risk measures: CVaR
5. Multi-period portfolio optimization
- Scenario trees
- Stochastic dedication
- Stochastic programming
- Stochastic programming for portfolio optimization
6. Index funds
- Strategic asset allocation
- Tactical asset allocation
- Integrated indexation models
7. Financial Products Novelties (omitted)
- Callable Bonds
- MBS
- Contingent debt

3. 3
3rd
Day
8. Scenario Generation
- Framework and Methodologies
- Constructing Event Trees
9. International asset allocation
- Indexation models
- Hedging strategies
- Scenario generation
10. Corporate Bond Portfolios
- Credit Risk Securities
- Integrating Credit and Market Risk
- Optimizing the right Risk metric
- Index Funds for Corporate Bond Portfolio
- Tracking Corporate Bond Index
11. Overview of FINLIB. A library of financial optimization models