Defining the Modeling Domain

Dimitris N. Chorafas

Chapter 3 in Financial Models and Simulation, 1995, pp 43-61 from Palgrave Macmillan

Abstract: Abstract Information about money and the ability to manage financial resources are every bit as important as money itself. As bankers know from experience, the overriding effort is that of locating the best or most favorable degree, amount, condition or product mix. This constitutes an optimum, under an acceptable level of risk. The notion of optimization is present in all sciences and many tools in mathematics address this issue. But in terms of the goals we are after, from one domain to another the notion of an optimum varies: In biology, for instance, an optimum is the amount of light, heat, moisture and food best promoting reproduction and growth. In finance, it is the most favorable choice which we make in order to balance risk and return — controlling the former and enhancing the latter.

Keywords: Modeling Domain; Balance Sheet; Rocket Scientist; Financial Analyst; Option Price Model (search for similar items in EconPapers)
Date: 1995
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-37483-6_3

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DOI: 10.1057/9780230374836_3

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