Managing financial risk in planning under uncertainty

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Abstract

A methodology is presented to include financial risk management in the framework of two-stage stochastic programming for planning under uncertainty. A known probabilistic definition of financial risk is adapted to be used in this framework and its relation to downside risk is analyzed. Using these definitions, new two-stage stochastic programming models that manage financial risk are presented. Computational issues related to these models are also discussed. © 2004 American Institute of Chemical Engineers AIChE J, 50: 963–989, 2004

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