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A Four-Moments Alternative to Simulation for a Class of Stochastic Management Models

Author

Listed:
  • John F. Kottas

    (College of William and Mary)

  • Hon-Shiang Lau

    (Washington State University)

Abstract

This paper presents a computational alternative to simulation for a large class of stochastic management models involving functions of random variables. An example of a model in this class is the well-known "risk analysis" problem studied by Hertz and Hillier. Our computational approach includes (i) a versatile framework to describe the univariate and dependence characteristics of a model's random variables, and (ii) formulas for computing the central moments of the model's objective variable. The usefulness of these central moments in decision making is then illustrated and discussed.

Suggested Citation

  • John F. Kottas & Hon-Shiang Lau, 1982. "A Four-Moments Alternative to Simulation for a Class of Stochastic Management Models," Management Science, INFORMS, vol. 28(7), pages 749-758, July.
    • Handle: RePEc:inm:ormnsc:v:28:y:1982:i:7:p:749-758
    DOI: 10.1287/mnsc.28.7.749
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