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Evolutionary multi-stage financial scenario tree generation

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  • Ronald Hochreiter

Abstract

Multi-stage financial decision optimization under uncertainty depends on a careful numerical approximation of the underlying stochastic process, which describes the future returns of the selected assets or asset categories. Various approaches towards an optimal generation of discrete-time, discrete-state approximations (represented as scenario trees) have been suggested in the literature. In this paper, a new evolutionary algorithm to create scenario trees for multi-stage financial optimization models will be presented. Numerical results and implementation details conclude the paper.

Suggested Citation

  • Ronald Hochreiter, 2009. "Evolutionary multi-stage financial scenario tree generation," Papers 0912.1534, arXiv.org, revised Jan 2010.
  • Handle: RePEc:arx:papers:0912.1534
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    File URL: http://arxiv.org/pdf/0912.1534
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    References listed on IDEAS

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    1. Ronald Hochreiter & Georg Pflug, 2007. "Financial scenario generation for stochastic multi-stage decision processes as facility location problems," Annals of Operations Research, Springer, vol. 152(1), pages 257-272, July.
    2. Kjetil H√łyland & Stein W. Wallace, 2001. "Generating Scenario Trees for Multistage Decision Problems," Management Science, INFORMS, vol. 47(2), pages 295-307, February.
    3. Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
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