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A decision model for natural oil buying policy under uncertainty
A manufacturer, in a fast moving consumer goods industry, buys Natural oils from a number of oil suppliers world-wide. The prices of these oils are the major raw material cost in producing the consumer goods, which are also sold world-wide. The volatility in the international prices of the Natural oils has signiÂŻcant impact on the planning and budgets decisions. Since the oils are bought and the ÂŻnished products are sold in markets throughout the world, the manufacturer is exposed to a variety of market uncertainties and the resulting risks. These uncertainties are the raw material prices, the demand and the therefore the selling prices for the finished goods- all of which influence the profitability of the manufacturing firm. The risks can be minimised by entering into futures contract of appropriate duration, that is, by following a schedule of "forward"' purchase of oil (with specific series of future delivery dates) with the oil suppliers. We formulate this problem as a two-stage Stochastic Program (SP) using the futures and the spot prices for the Natural oil. This SP model gives robust decisions that hedge against the uncertainties in the Natural oil prices and the demand for the finished products. The uncertainty in the oil prices and the demand are
modelled through a scenario generator. We have constructed a decision support system (DSS) that integrates the SP model, the scenario generator and the solution algorithm. This DSS also provides the decision maker a profile of the risk and return exposures for different policies
Optimization of Trading Physics Models of Markets
We describe an end-to-end real-time S&P futures trading system. Inner-shell
stochastic nonlinear dynamic models are developed, and Canonical Momenta
Indicators (CMI) are derived from a fitted Lagrangian used by outer-shell
trading models dependent on these indicators. Recursive and adaptive
optimization using Adaptive Simulated Annealing (ASA) is used for fitting
parameters shared across these shells of dynamic and trading models
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