A Hedged Monte Carlo Approach to Real Option Pricing

In this work we are concerned with valuing optionalities associated to invest or to delay investment in a project when the available information provided to the manager comes from simulated data of cash flows under historical (or subjective) measure in a possibly incomplete market. Our approach is suitable also to incorporating subjective views from management or market experts and to stochastic investment costs. It is based on the Hedged Monte Carlo strategy proposed by Potters et al (2001) where options are priced simultaneously with the determination of the corresponding hedging. The approach is particularly well-suited to the evaluation of commodity related projects whereby the availability of pricing formulae is very rare, the scenario simulations are usually available only in the historical measure, and the cash flows can be highly nonlinear functions of the prices.Comment: 25 pages, 14 figure

A Polynomial Optimization Approach to Constant Rebalanced Portfolio Selection

We address the multi-period portfolio optimization problem with the constant rebalancing strategy. This problem is formulated as a polynomial optimization problem (POP) by using a mean-variance criterion. In order to solve the POPs of high degree, we develop a cutting-plane algorithm based on semidefinite programming. Our algorithm can solve problems that can not be handled by any of known polynomial optimization solvers.

Application of stochastic programming to reduce uncertainties in quality-based supply planning of slaughterhouses

To match products of different quality with end market preferences under supply uncertainty, it is crucial to integrate product quality information in logistics decision making. We present a case of this integration in a meat processing company that faces uncertainty in delivered livestock quality. We develop a stochastic programming model that exploits historical product quality delivery data to produce slaughterhouse allocation plans with reduced levels of uncertainty in received livestock quality. The allocation plans generated by this model fulfil demand for multiple quality features at separate slaughterhouses under prescribed service levels while minimizing transportation costs. We test the model on real world problem instances generated from a data set provided by an industrial partner. Results show that historical farmer delivery data can be used to reduce uncertainty in quality of animals to be delivered to slaughterhouses

Water Network Optimization with Wastewater Regeneration Models

The conventional water network synthesis approach greatly simplifies wastewater treatment units by using fixed recoveries, creating a gap for their applicability to industrial processes. This work describes a unifying approach combining various technologies capable of removing all the major types of contaminants through the use of more realistic models. The following improvements are made over the typical superstructure-based water network models. First, unit-specific shortcut models are developed in place of the fixed contaminant removal model to describe contaminant mass transfer in wastewater treatment units. Shortcut wastewater treatment cost functions are also incorporated into the model. In addition, uncertainty in mass load of contaminants is considered to account for the range of operating conditions. Furthermore, the superstructure is modified to accommodate realistic potential structures. We present a modified Lagrangean-based decomposition algorithm in order to solve the resulting nonconvex mixed-integer nonlinear programming (MINLP) problem efficiently. Several examples are presented to illustrate the effectiveness and limitations of the algorithm for obtaining the global optimal solutions.The authors would like to acknowledge financial support from the National Science Foundation for financial support under grant CBET-1437668, the program “Estancias de movilidad en el extranjero “Jose Castillejo” para jóvenes doctores” (JC2011-0051) of the Spanish Ministerio de Educación, and from the University of Alicante (GRE11-19)

OptCom: A Multi-Level Optimization Framework for the Metabolic Modeling and Analysis of Microbial Communities

Microorganisms rarely live isolated in their natural environments but rather function in consolidated and socializing communities. Despite the growing availability of high-throughput sequencing and metagenomic data, we still know very little about the metabolic contributions of individual microbial players within an ecological niche and the extent and directionality of interactions among them. This calls for development of efficient modeling frameworks to shed light on less understood aspects of metabolism in microbial communities. Here, we introduce OptCom, a comprehensive flux balance analysis framework for microbial communities, which relies on a multi-level and multi-objective optimization formulation to properly describe trade-offs between individual vs. community level fitness criteria. In contrast to earlier approaches that rely on a single objective function, here, we consider species-level fitness criteria for the inner problems while relying on community-level objective maximization for the outer problem. OptCom is general enough to capture any type of interactions (positive, negative or combinations thereof) and is capable of accommodating any number of microbial species (or guilds) involved. We applied OptCom to quantify the syntrophic association in a well-characterized two-species microbial system, assess the level of sub-optimal growth in phototrophic microbial mats, and elucidate the extent and direction of inter-species metabolite and electron transfer in a model microbial community. We also used OptCom to examine addition of a new member to an existing community. Our study demonstrates the importance of trade-offs between species- and community-level fitness driving forces and lays the foundation for metabolic-driven analysis of various types of interactions in multi-species microbial systems using genome-scale metabolic models