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Article: A robust optimization approach to capital rationing and capital budgeting.
- Article from:
- Engineering Economist
- Article date:
- September 22, 2005
- Author:
CopyrightCOPYRIGHT 2005 Institute of Industrial Engineers, Inc. (IIE). This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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INTRODUCTION
Motivation
Capital rationing and capital budgeting are powerful decision analysis tools. They deal with investment decisions when confronted with investments opportunities with quantifiable cash flows generated by each individual project. These problems are different than stock portfolio selection in that covariance between investments is not taken into account. Deterministic capital rationing and capital budgeting models implicitly rely on the assumption that accurate information can be obtained. The decision maker has the responsibility to gather this data, usually using forecasting methods. Such deterministic models simply ignore ...