Browsing by Author "Korhonen, Pekka, professor"

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  • An Approach to Multiple Objective Quadratic-Linear Programming, with an Application to Portfolio Selection
    (1998) Yu, GuangYuan
     School of Business | Doctoral dissertation (monograph)
  • Data Envelopment Analysis in Planning and Heterogeneous Environments
    (2003) Syrjänen, Mikko
     School of Business | Doctoral dissertation (article-based)
  • Evaluation of executive stock options in continuous and discrete time
    (2009) Pirjetä, Antti
     School of Business | Doctoral dissertation (article-based)
    What follows is a treatise on executive stock options (ESOs), employing both theoretical and empirical methods. The title speaks of evaluation, instead of 'plain' valuation, because subjective ESO values depend on the employee's private data including risk aversion, initial wealth, and labor income. Economic theory assumes that utility is drawn from consumption, and consumers are impatient. It follows that the decision to exercise or sell ESOs deals with consumption smoothing. Assuming that the ESOs have vested, the option grantee asks: Is it better to sell now and consume the proceeds, or to wait and possibly enjoy higher consumption later on? Obviously, the answer depends (among other things) on individual risk preferences. ESOs are options in the sense that they provide the call option payo¤. However, since the option grantee cannot usually hedge his position, usual arguments leading to risk-neutral valuation are not applicable, suggesting that ESO pricing is different from standard contracts. This claim can be tested, since ESOs are traded in the Helsinki stock exchange. Now let us consider a generalized Black-Scholes model with (implied) volatility as free parameter. If ESO pricing differs from standard options, it should be seen in their volatilities. It is shown in Market pricing of ESOs that volatilities (i.e. relative prices) of ESOs are lower compared to standard options. Given the prominence of illiquidity and hedging under uncertainty in mathematical finance, we ask if these factors could explain the discount in ESO prices. In the case of Nokia ESOs, illiquidity is not the story, since the underlying stock is fiercely traded. However, hedging is complicated by ESOs having longer maturities than standard contracts. The average maturity of ESOs is 3.1 years, compared to few months for liquid standard options. Hence, hedging ESOs by taking opposite position in standard options is subject to volatility risk. Obviously, hedging is also possibly by shorting the stock and using cash account, but this involves frequent trading and hedging error. Nonetheless, volatility risk and hedging error can explain the discount only to an extent. Finally, we conclude that the employees benefit from public trading of ESOs. It allows the employees to receive some time value1, which they would lose if ESOs were not traded and had to be exercised.
  • In search for the best alliance structure between banks and insurance companies
    (2006) Voutilainen, Raimo
     School of Business | Doctoral dissertation (article-based)
    In search for the best alliance structure between banks and insurance companies Banks and insurance companies have widely recognized the need for mutual co-operation in the form of cross-sector alliances. In these articles we study the problem of finding the most suitable alliance structure between banks and insurance companies from the points of view of executive management, supervisory authorities and customers. We also study possible compromise alliance models for several decision maker groups and a group’s understanding of other groups’ decisions. In the first article we study alliances between banks and insurance companies from the perspective of the top management. We define six different structural models for financial alliances. We also characterize nine criteria according to which the previously defined models are to be compared to achieve the most attractive alliance model. Thus, we obtain a multi-criteria decision problem. In the second article we solve the problem of searching the most preferred alliance model by using an expert panel and the Analytic Hierarchy Process (AHP). The experts are representatives of the top management of Finnish banks and insurance companies. Based on the evaluations of the panel, the alternatives Financial Conglomerate and Cross-Selling Agreement, no Overlapping Service Channels are most preferred. Which one is chosen, depends on how risk is emphasized. In the third article we look for the best alliance compromise structure between the executives and the bank and insurance supervisory authorities in Finland. First, we study alternative alliance structures from the point of view of supervisors. We introduce eight criteria for the evaluation of the alternative alliance structures. The evaluation is carried out by an expert panel consisting of supervisory authorities. The alliance models based on plain cross-selling agreements receive the highest ranks. The financial conglomerate might be an acceptable compromise alternative for the supervisory authorities as well on certain conditions. In the fourth article we study alternative alliance structures from the point of view of Finnish customer representatives. Seven criteria are introduced for the evaluation of the models. The evaluation is carried out by an expert panel consisting of customer representatives. The alliance models based on cross-selling agreements receive the highest ranks. The customer representatives then evaluate the models using the most important executive and supervisory criteria from our earlier studies. They also invent executive and supervisory criteria. It is more difficult for them to assume supervisory than executive thinking. Finally, we compare the criteria and the model priorities of this and our earlier articles. The best compromise model from all three points of view could be the financial conglomerate on certain conditions
  • Incorporating Preference Information in Data Envelopment Analysis
    (2000) Joro, Tarja
     School of Business | Doctoral dissertation (monograph)
  • Modelling Timber Harvesting Decisions as a Part of the Management of a Mixed Asset Portfolio
    (2001) Heikkinen, Veli-Pekka
     School of Business | Doctoral dissertation (article-based)
  • Progressively interactive evolutionary multiobjective optimization
    (2011) Sinha, Ankur
     School of Business | Doctoral dissertation (article-based)
    A complete optimization procedure for a multi-objective problem essentially comprises of search and decision making. Depending upon how the search and decision making task is integrated, algorithms can be classified into various categories. Following `a decision making after search' approach, which is common with evolutionary multi-objective optimization algorithms, requires to produce all the possible alternatives before a decision can be taken. This, with the intricacies involved in producing the entire Pareto-front, is not a wise approach for high objective problems. Rather, for such kind of problems, the most preferred point on the front should be the target. In this study we propose and evaluate algorithms where search and decision making tasks work in tandem and the most preferred solution is the outcome. For the two tasks to work simultaneously, an interaction of the decision maker with the algorithm is necessary, therefore, preference information from the decision maker is accepted periodically by the algorithm and progress towards the most preferred point is made. Two different progressively interactive procedures have been suggested in the dissertation which can be integrated with any existing evolutionary multi-objective optimization algorithm to improve its effectiveness in handling high objective problems by making it capable to accept preference information at the intermediate steps of the algorithm. A number of high objective un-constrained as well as constrained problems have been successfully solved using the procedures. One of the less explored and difficult domains, i.e., bilevel multiobjective optimization has also been targeted and a solution methodology has been proposed. Initially, the bilevel multi-objective optimization problem has been solved by developing a hybrid bilevel evolutionary multi-objective optimization algorithm. Thereafter, the progressively interactive procedure has been incorporated in the algorithm leading to an increased accuracy and savings in computational cost. The efficacy of using a progressively interactive approach for solving difficult multi-objective problems has, therefore, further been justified
  • Reference point based decision support tools for interactive multiobjective optimization
    (2008) Eskelinen, Petri
     School of Business | Doctoral dissertation (article-based)
    In this thesis we propose a set of reference point based decision support tools for interactive multiobjective optimization. The tools can be considered as an supplementary methods that can be used to extend the possibilities of existing interactive methods. These tools are designed for computationally demanding problems and special attention is paid to reduction of all unnecessary computation as far as possible. All proposed methods are learning-oriented in the sense that they allow the decision maker to do free-search. The thesis contains four independent essays. In the first essay we survey interactive multiobjective optimization methods that utilize so-called objective trade-off information in a way or another. We discuss theoretical issues behind these methods and study them from the trade-off utilization point of view. We also point out some major benefits and drawbacks that can be related to objective trade-off information in general. In addition we make some analysis related to the methods presented. In the second essay a trade-off analysis tool with an applicability study is presented. The development of the tool is based on the findings made in the first essay. The trade-off analysis tool can be connected to some existing reference point based method, and the decision maker can use this tool to make local trade-off analysis related to Pareto optimal solutions obtained in an interactive method. The supplementary applicability study method can be used to notify the decision maker if the trade-off analysis produces unrealistic approximated Pareto optimal solutions. In the third essay we suggest methods which can be used to incorporate preference information into an achievement scalarizing function. This allows us to take into account preferences of the decision maker when we are projecting a given reference point into the set of Pareto optimal solutions. Three methods are proposed which can be utilized based on amount of preference information the decision maker is willing to give. The fourth essay proposes a Pareto navigator method that can be seen as a nonlinear extension to the Pareto race method. The idea is to produce polyhedral approximation for the Pareto optimal set in the objective space. The decision maker is able to navigate on this approximation by using a specially designed intuitive user interface. When the decision maker has located an interesting area in the objective space the obtained approximated Pareto optimal solution can be used, for instance, as a reference point to produce the corresponding actual Pareto optimal solution. Keywords: Multiobjective optimization, Reference point method, Decision support, Multiple criteria decision making, Pareto optimality
  • The Role of Production Assumptions in Data Envelopment Analysis
    (2001) Kuosmanen, Timo
     School of Business | Doctoral dissertation (article-based)
  • A stepwise refinement approach to approximating the Pareto surface in nonlinear multiobjective optimisation
    (2006) Pulkkinen, Pertti
     School of Business | Doctoral dissertation (monograph)