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2015 10 10

This document provides an overview of the Quantitative Techniques II course, including expectations, examples of optimization problems and mathematical modeling, and the course outline and evaluation. It presents two examples of linear programming problems - one involving optimizing investment amounts in a chit fund scheme over six months, and another involving allocating $10 million across bonds with different yields and maturity periods while satisfying portfolio constraints. The examples are to be formulated as linear programming problems with decision variables, objective functions, and constraints defined. The course also introduces linear and nonlinear functions as well as deterministic and stochastic models.

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Ashutosh Kumar
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286 views19 pages

2015 10 10

This document provides an overview of the Quantitative Techniques II course, including expectations, examples of optimization problems and mathematical modeling, and the course outline and evaluation. It presents two examples of linear programming problems - one involving optimizing investment amounts in a chit fund scheme over six months, and another involving allocating $10 million across bonds with different yields and maturity periods while satisfying portfolio constraints. The examples are to be formulated as linear programming problems with decision variables, objective functions, and constraints defined. The course also introduces linear and nonlinear functions as well as deterministic and stochastic models.

Uploaded by

Ashutosh Kumar
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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Quantitative Techniques II

What are your expectations from this course?

My expectations

Examples of optimization problems youve seen


earlier?
Examples of Mathematical modelling youve seen
earlier?
here, in term1?
E.g. in cases?

Course Outline and Evaluation

Additional References
1. Applied Mathematical Programming
by Bradley, Hax, and Magnanti,
Addison-Wesley, 1977,
[Link]
2. Proceedings of the Advanced Workshop and
Tutorial on Operations Research (AWTOR) 2012,
Organized by and at IIM Indore,
Sponsored by ORSI Ahmedabad Chapter,
Edited by Nagarajan K, and N Ravichandran,
Allied Publishers, 2014.

Example 1
(Source: TT Narendran, IIT Madras, Mathematical Programming Models,
Proceedings of AWTOR 2012)

A senior executive of a company recently opted


for VRS with a hefty packet of Rs. 5 crores. A Chit
Fund Company has offered the following
investment scheme for the benefit of such
retired people:
"Invest a certain sum (in lakhs of rupees) at
the beginning of any month, invest half of that
amount beginning of the next month and end
of the second month, you will get twice the
amount invested originally in the first month".

This scheme is available for the next six


months.
The returns received at the end of any month
can be used immediately for reinvesting either
as a fresh investment or as a follow-up
investment.
If you are in his/ her position, what will your aim
be?
How will you achieve your aim/ objective?

Example 2
(Source: Bradley, Hax, Magnanti)

A portfolio manager in charge of a bank


portfolio has $10 million to invest. The securities
available for purchase, as well as their respective
quality ratings, maturities, and yields, are shown
in the following table:

Bond
name

Bond type

Quality

Years to
maturity

Yield to
maturity

After-tax
yield

Municipal

4.3

4.3

Agency

15

5.4

2.7

Government

5.0

2.5

Government

4.4

2.2

Municipal

4.5

4.5

The bank places the following policy limitations


on the portfolio managers actions:

1. Government and agency bonds must total at


least $4 million.
2. The average quality of the portfolio cannot
exceed 1.4 on the banks quality scale. (Note
that a low number on this scale means a
high-quality bond.)
3. The average years to maturity of the portfolio
must not exceed 5 years.

If you are the portfolio manager, what would


your objective be?
What all factors limit your objective?
(What are the constraints?)

Mathematical Models:
Deterministic
Linear
Non-linear

Stochastic

Linear Programming Problems (LPP) are a subclass


of (deterministic) optimization problems.

Is f = xy + yz a linear function?
f(x,z) = xy + yz?
f(y) = xy + yz is also linear.

f(x, y, z) = xy + yz is not linear.


Given that x and y are decision variables, is
(x/y) + (x2/y) < 10x
a linear constraint?

To model the above examples:


Decision variables

Objective function
Constraints

Formulate examples 1 and 2 as LPPs.

Some Mathematical basics

Questions?

Thank You

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