Paul Glasserman

The Lanchester Prize for 2006 is awarded to Paul Glasserman for his book, Monte Carlo Methods in Financial Engineering, Springer, New York, 2004.

Monte Carlo simulation has been a fundamental tool and focus of operations research and the management sciences for several decades. In recent years, Monte Carlo methods have been particularly critical in the expanding field of financial engineering, becoming even the subject of legislation and risk-control regulations. Monte Carlo implementations in this domain now determine, among other things, capital requirements across the globe, and, with that, the prices and interest rates that affect all aspects of the world economy. Paul Glasserman’s work has been the source for many of those implementations. In just over two years since publication, his book, Monte Carlo Methods in Financial Engineering, has become the standard reference for the field and required reading for anyone entering the practice of derivative pricing and risk management.

Glasserman’s book serves as both an introduction to Monte Carlo methods and financial engineering in general and as a source for experts to find the most efficient approaches to model complex financial issues. His lucid explanations lead readers through the process of conceptualizing an issue, constructing a model, implementing a solution, and searching for improvements. He builds insight into the nature of models for prices, rates, and values, the fundamental difficulty of mixing discretization schemes with continuous-time models, and the key factors to consider in beginning any new implementation.

In addition to illuminating the variety of evaluative, descriptive, and prescriptive financial tasks that Monte Carlo methods can address, Glasserman’s book highlights innovative new methods, many developed by the author, to increase simulation efficiency, to estimate the effects of parameter changes, and to simulate exceedingly rare events. In making such state-of-the-art OR/MS methodology accessible to key decision makers in a broad and important sector of the economy, this book serves the entire profession. Paul Glasserman’s Monte Carlo Methods in Financial Engineering showcases the best of operations research and the management sciences as an interweaving combination of deep theoretical analysis and practical real-world application.

Award presented by John Birge, Chair, and Mark S. Daskin, President, November 6, 2006.