Articles

A Practical Implementation of Stochastic Programming: an Application to the Evaluation of Option Contracts in Supply Chains

C. VAN DELFT, J. Vial

Automatica

mai 2004, vol. 40, n°5, pp.743-756

Départements : Information Systems and Operations Management, GREGHEC (CNRS)


Stochastic programming is a powerful analytical method in order to solve sequential decision-making problems under uncertainty. We describe an approach to build such stochastic linear programming models. We show that algebraic modeling languages make it possible for non-specialist users to formulate complex problems and have solved them by powerful commercial solvers. We illustrate our point in the case of option contracts in supply chain management and propose a numerical analysis of performance. We propose easy-to-implement discretization procedures of the stochastic process in order to limit the size of the event tree in a multi-period environment.


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