Article ID: | iaor201352 |
Volume: | 24 |
Issue: | 1 |
Start Page Number: | 89 |
End Page Number: | 110 |
Publication Date: | Jan 2013 |
Journal: | IMA Journal of Management Mathematics |
Authors: | Beraldi Patrizia, Massab Ivar, De Simone Francesco, Violi Antonio, Costabile Massimo, Russo Emilio |
Keywords: | programming: branch and bound, risk, decision: applications |
This paper addresses the capital budgeting problem under uncertainty. In particular, we propose a multistage stochastic programming model aimed at selecting and managing a project portfolio. The dynamic uncertain evolution of each project value is modelled by a scenario tree over the planning horizon. The model allows the decision maker to revise decisions by decommitting from a given project if it shows a negative performance. Risk is explicitly assessed by defining a mean‐risk objective function, where the conditional value at risk is used. A customized branch‐and‐bound method is also introduced for solving the proposed model. Extensive computational experiments have been carried out to validate the model effectiveness, also in comparison with other possible benchmark policies. The numerical results collected by solving randomly generated instances with the proposed branch‐and‐bound approach seems to be encouraging.