Book contents
- Frontmatter
- Contents
- Foreword
- 1 Introduction
- 2 Linear programming: theory and algorithms
- 3 LP models: asset/liability cash-flow matching
- 4 LP models: asset pricing and arbitrage
- 5 Nonlinear programming: theory and algorithms
- 6 NLP models: volatility estimation
- 7 Quadratic programming: theory and algorithms
- 8 QP models: portfolio optimization
- 9 Conic optimization tools
- 10 Conic optimization models in finance
- 11 Integer programming: theory and algorithms
- 12 Integer programming models: constructing an index fund
- 13 Dynamic programming methods
- 14 DP models: option pricing
- 15 DP models: structuring asset-backed securities
- 16 Stochastic programming: theory and algorithms
- 17 Stochastic programming models: Value-at-Risk and Conditional Value-at-Risk
- 18 Stochastic programming models: asset/liability management
- 19 Robust optimization: theory and tools
- 20 Robust optimization models in finance
- Appendix A Convexity
- Appendix B Cones
- Appendix C A probability primer
- Appendix D The revised simplex method
- References
- Index
Appendix D - The revised simplex method
Published online by Cambridge University Press: 06 July 2010
- Frontmatter
- Contents
- Foreword
- 1 Introduction
- 2 Linear programming: theory and algorithms
- 3 LP models: asset/liability cash-flow matching
- 4 LP models: asset pricing and arbitrage
- 5 Nonlinear programming: theory and algorithms
- 6 NLP models: volatility estimation
- 7 Quadratic programming: theory and algorithms
- 8 QP models: portfolio optimization
- 9 Conic optimization tools
- 10 Conic optimization models in finance
- 11 Integer programming: theory and algorithms
- 12 Integer programming models: constructing an index fund
- 13 Dynamic programming methods
- 14 DP models: option pricing
- 15 DP models: structuring asset-backed securities
- 16 Stochastic programming: theory and algorithms
- 17 Stochastic programming models: Value-at-Risk and Conditional Value-at-Risk
- 18 Stochastic programming models: asset/liability management
- 19 Robust optimization: theory and tools
- 20 Robust optimization models in finance
- Appendix A Convexity
- Appendix B Cones
- Appendix C A probability primer
- Appendix D The revised simplex method
- References
- Index
Summary
As we discussed in Chapter 2, in each iteration of the simplex method, we first choose an entering variable looking at the objective row of the current tableau, and then identify a leaving variable by comparing the ratios of the numbers on the right-hand side and the column for the entering variable. Once these two variables are identified we update the tableau. Clearly, the most time-consuming job among these steps of the method is the tableau update. If we can save some time on this bottleneck step then we can make the simplex method much faster. The revised simplex method is a variant of the simplex method developed with precisely that intention.
The crucial question here is whether it is necessary to update the whole tableau in every iteration. To answer this question, let us try to identify what parts of the tableau are absolutely necessary to run the simplex algorithm. As we mentioned before, the first task in each iteration is to find an entering variable. Let us recall how we do that. In a maximization problem, we look for a nonbasic variable with a positive rate of improvement. In terms of the tableau notation, this translates into having a negative coefficient in the objective row, where Z is the basic variable.
To facilitate the discussion below let us represent a simplex tableau in an algebraic form, using the notation from Section 2.4.1.
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- Chapter
- Information
- Optimization Methods in Finance , pp. 327 - 337Publisher: Cambridge University PressPrint publication year: 2006