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Title: An approximate solution approach for a scenario-based capital budgeting model
Authors: Costa, A.
Paixão, J. P.
Keywords: 0-1 integer programming
Capital budgeting
Real options
Scenario-based optimization
Issue Date: 2010
Publisher: Springer Verlag
Abstract: Real options techniques such as contingent claims analysis and dynamic programming can be used for project evaluation when the project develops stochastically over time and the decision to invest into this project can be postponed. Following that perspective, Meier et al. (Oper Res 49(2):196-2 06, 2001) presented a scenario based model that captures risk uncertainty and managerial flexibility, maximizing the time-varying of a portfolio of investment options. However, the corresponding linear integer program turns out to be quite intractable even for a small number of projects and time periods. In this paper, we propose a heuristic approach based on an alternative scenario based model involving a much less number of variables. The new approach allows the determination of reasonable quality approximate solutions with huge reductions on the computational times required for solving large size instances.
Peer reviewed: Sim
ISSN: 1619-697X
Appears in Collections:DMQGE-RI - Artigos em revistas internacionais com arbitragem científica

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