An analysis of a dynamic project cost problem

This paper presents a stochastic allocation model for a sequential financial problem involving the allocation of funds to uncertain future payments. It is shown that under certain conditions the optimal allocation policies are piece-wise linear with the budget available, and that there exists an initimate relationship between these policies and the myopic policies obtained from the solution of a sequence of single-payment problems. A numerical example is provided and, finally, certain technical and methodological issues associated with a chance constraint version of the problem are discussed.