Variable Neighbourhood Search for Financial Derivative Problem

  • Nareyus Immanual Lawrance Amaldass Brunel University
  • Cormac Lucas Brunel University
  • Nenad Mladenovic

Abstract

We propose a new matching problem for combinatorial optimization in financial markets. The problem studied here has arisen from the financial regulators that collect transaction data across regulated assets classes. Unlike previous matching problems, our focus is to identify any unhedged/unmatched derivative, Contract for Difference (CFD) with its corresponding underlying asset that has been reported to the corresponding component authorities. The underlying asset and CFD transaction contains variables like volume and price. Therefore we are looking for a combination of underlying asset variables that may hedge/match the equivalent CFD variables. Our aim is to identify unhedged/unmatched CFD's. This problem closely relates to the goal programming problem with variable parameters. In this paper, we construct and implement a variant of Basic Variable Neighbourhood Search (BVNS), with our newly constructed local search techniques that performs efficient neighbourhood search to solve these types of problems. Computational results show our proposed approach achieves good solutions.

Published
Jun 27, 2019
How to Cite
LAWRANCE AMALDASS, Nareyus Immanual; LUCAS, Cormac; MLADENOVIC, Nenad. Variable Neighbourhood Search for Financial Derivative Problem. Yugoslav Journal of Operations Research, [S.l.], v. 29, n. 3, p. 359–373, june 2019. ISSN 2334-6043. Available at: <http://yujor.fon.bg.ac.rs/index.php/yujor/article/view/629>. Date accessed: 29 mar. 2024.
Section
Articles