VIKOR Method with Application to Borrowing Terms Selection

Chapter
Part of the Multiple Criteria Decision Making book series (MCDM)

Abstract

The main aim of the chapter is presenting the VIKOR method and selecting the best borrowing alternative according to the given criteria, assuming it is decided that borrowing is necessary. The VIKOR method is introduced as one applicable technique to implement within multiple criteria decision making. It focuses on ranking and selecting from a set of alternatives, and determines compromise solutions for a problem with conflicting criteria, which can help the decision makers to reach a final decision. The compromise solution is a feasible solution that is the “closest” to the ideal solution. Here, compromise means an agreement established by mutual concessions. The method compromises conflicting criteria, and group utility with individual regret. To apply the VIKOR method, the borrowing alternatives should be evaluated in terms of established criteria for the stated problem. The alternatives are generated with the values of the following instruments: interest rate, maturity, currency, grace period and repayment schedule, based on the elements offered by potential creditors. The criteria for decision are: borrowing cost, market risk, and liquidity risk. Uncertainties related to this analysis are treated by planning and analyzing scenarios. Vague and imprecise data are treated using fuzzy numbers. The criterion functions are formulated and their numerical values are determined for all alternatives. The alternatives are ranked by the method VIKOR and the compromise solution is determined.

Keywords

Borrowing terms Multicriteria decision Compromise VIKOR method 
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Copyright information

© Springer International Publishing Switzerland 2015

Authors and Affiliations

  1. 1.Central Bank of SerbiaBelgradeSerbia

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