Dept. of Operations Seminar

Analysis and enhancement of practice-based policies for the real option management of commodity stor

The real option management of commodity storage assets is an important practical problem. Practitioners heuristically solve the resulting stochastic optimization model using the rolling intrinsic (RI) and rolling basket of spread options (RSO) policies. Combined with Monte Carlo simulation, these policies typically yield near optimal lower bound estimates on the value of storage. This paper provides novel structural and numerical support for the use of the RI and RSO policies, and enhances them by developing a simple and effective dual upper bound to be used in conjunction with these policies. Moreover, this work emphasizes the superiority of the RI policy over the RSO policy and proposes a variant of the RSO policy that, on the considered instances, slightly improves on the average performance of the RSO policy but yields a more substantial improvement when the suboptimality of this policy is more pronounced.

 

Fee: [Yes/No/Varies]

Contact Information:
Tedda Nathan
Dept. Administrator, Operations Dept.
txn2@case.edu
216-368-2040
216-368-6249

Friday, April 18, 2014 from 1:30 p.m. to 3 p.m.
118 Peter B. Lewis Building
11119 Bellflower Road
Cleveland, OH 44106-7235
United States
Speaker(s): Nicola Secomandi, Carnegie Mellon Univ
Sponsored by: Dept. of Operations
Analysis and enhancement of practice-based policies for the real

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