Some New Approaches to Risk

Byrne, Richard; Charnes, A.; Cooper, W. W.; Kortanek, K. O.

doi:10.21236/ad0653727

Cited by 7 publications

(7 citation statements)

References 19 publications

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“…This type of assumption implicity characterizes the work previously cited (see [1], [2], [5], [6], [9] and [12]). Under this situation one has full knowledge of his future as well as present investment alternatives for each set of possible events, and may conceptually imbed them in a common probabilistic sequential framework to achieve an integrated solution.…”

Section: Previous Researchmentioning

confidence: 59%

The Resolution of Investment Uncertainty Through Time

Bierman¹,

Hausman²

1972

Management Science

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Investments in operating assets with identical expected discounted return and identical risk characteristics (i.e., variances and higher moments) when measured at the outset may have significantly different patterns of uncertainty resolution over their lives. The concept of uncertainty resolution, although ambiguous, is a potentially important characteristic of an investment alternative. This paper explores the usefulness and limitations of the concept of uncertainty resolution in the evaluation of both single risky investments and in portfolios of risky investments. In cases where future investment opportunities are completely known the concept does not seem useful; however, in a more realistic setting where future investment alternatives are ill defined at present, the concept may prove useful. Further research is needed to explore fully the questions raised here.

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Section: Previous Researchmentioning

confidence: 59%

The Resolution of Investment Uncertainty Through Time

Bierman¹,

Hausman²

1972

Management Science

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“…For illustrative purpose, projects values and resources consumption have been randomly generated from an uniform distribution (as in [35]) in the range [300, 600] and [10,1000], respectively. However, because of the generality of the proposed solution approach other distributions can be used as well.…”

Section: Numerical Resultsmentioning

confidence: 99%

“…We also mention the more recent contribution [23] where a real option evaluation approach is used to determine the uncertain future project cash-flows included within a dynamic scenario-based model. The second approach is based on the use of chance constraints and it has in [10] and [35] some of the major exponents. Such an approach suggests a "proactive" strategy to select a portfolio of projects able to hedge against losses due to future adverse events with a given reliability value.…”

mentioning

confidence: 99%

Capital rationing problems under uncertainty and risk

2011

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Capital rationing is a major problem in managerial decision making. The classical mathematical formulation of the problem relies on a multi-dimensional knapsack model with known input parameters. Since capital rationing is carried out in conditions where uncertainty is the rule rather than the exception, the hypothesis of deterministic data limits the applicability of deterministic formulations in real settings. This paper proposes a stochastic version of the capital rationing problem which explicitly accounts for uncertainty. In particular, a mathematical formulation is provided in the framework of stochastic programming with joint probabilistic constraints and a novel solution approach is proposed. The basic model is also extended to include specific risk measures. Preliminary computational results are presented and discussed.

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“…The conceptualisation of risk differs across academic disciplines like psychology, engineering and economics as well as in economics and business itself such in finance, operations research and insurance. It is not only depended on factual aspects such as context and application, but also on subjective judgements and circumstances (Byrne, Charnes, Cooper and Kortanek, 1968;Brachinger and Weber, 1997;Pedersen and Satchell, 1998). Results from empirical and experimental research show that human and managerial risk or uncertainty judgements are often not in line with risk perception and behaviour implied by normative decision theory (especially subjective expected utility maximisation) or modern portfolio theory (mean-variance) (Kahneman and Tversky, 1982;March and Shapira, 1987).…”

Section: On the Problems Concerning The Measurement Of Risk For The Pmentioning

confidence: 99%