Abstract
We describe and compare stochastic network optimization models for investment planning under uncertainty. Emphasis is placed on multiperiod a sset allocation and active portfolio management problems. Myopic as well as multiple period models are considered. In the case of multiperiod models, the uncertainty in asset returns filters into the constraint coefficient matrix, yielding a multi-scenario program formulation. Different scenario generation procedures are examined. The use of utility functions to reflect risk bearing attitudes results in nonlinear stochastic network models. We adopt a newly proposed decomposition procedure for solving these multiperiod stochastic programs. The performance of the models in simulations based on historical data is discussed.
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Research partially supported by National Science Foundation Grant No. DCR-861-4057 and IBM Grant No. 5785. Also, support from Pacific Financial Companies is gratefully acknowledged.
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Mulvey, J.M., Vladimirou, H. Stochastic network optimization models for investment planning. Ann Oper Res 20, 187–217 (1989). https://doi.org/10.1007/BF02216929
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DOI: https://doi.org/10.1007/BF02216929