Jörgen Blomvall

Optimal financial decisions

Everyone prefer optimal decisions in financial markets, but in practice have to accept approximations since an optimal decision correctly have to capture market prices, the true probability distribution and other aspects such as transaction costs. My goal is to develop methods that can determine optimal decisions, which more accurately model the conditions that hold on financial markets. To achieve this, I systematically work with how financial markets work and how these should be modelled to be compatible with mathematical optimization models.

Accurate measurements

Fundamental financial quantities such as the time value of money, credit risks and price uncertainty cannot be observed. They have to be measured with optimization models from market prices. Unfortunately the measurement accuracy in traditional measurement methods are so low that not even the systematic risks for forward rates, default intensities or local volatilities can be determined. Since accurate measurements are the basis for successful research and necessary to determine optimal decisions, I have for 15 years developed optimization based measurement methods with significant improvements of measurement accuracy for forward rates, default intensities and local volatilities, which are central for equity-, interest-, credit-, currency-, commodity-, and derivative markets.

Optimal decisions

With the increased measurement accuracy the true systematic risks in financial markets can be determined. Together with market prices for financial instruments it is possible to determine optimal decisions on equity-, interest-, credit-, currency-, commodity-, and derivative markets with new methods in stochastic programming, stochastic dynamic programming or approximate stochastic dynamic programming. Properties which I would like to capture in the optimization models include actual market prices, systematic risk factors, time varying risk premia, assets true probability distribution, transaction costs and other constraints that investors have to consider.

The optimal path to financial decisions

To be able to determine optimal financial decisions I try to understand the central aspects of wealth management, otherwise the mathematical models will only give investments that are not optimal in real life. The improved measurement accuracy thereby also leads to new improved methods for how forward rates, default intensities and local volatilities can be used to improve pricing, risk measurement, risk management and performance attribution of financial instruments and portfolios on equity-, interest-, credit-, currency-, commodity- and derivative markets.