Dynamic and Simulation-Based Optimization for Portfolio Choice and Derivatives Pricing

This thesis focuses on the development of optimization frameworks to provide solutions to problems in time-varying asset allocation and derivatives pricing. The thesis consists of three essays. In the first, we develop a dynamic programming framework to examine the impact of return predictability and parameter uncertainty on long-term portfolio allocations, impacted by behavioural biases. The second essay deals with the development of a stochastic simulation framework for the pricing of barrier options, further extended in the final chapter where we allow for time-dependent volatility in the price process. In the same chapter, the pricing of credit derivatives is also studied.