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Simulation Optimization: Applications In Risk Management

Author

Listed:
  • MARCO BETTER

    (OptTek Systems, Inc., 1919 Seventh Street, Boulder, Colorado 80302, USA)

  • FRED GLOVER

    (OptTek Systems, Inc., 1919 Seventh Street, Boulder, Colorado 80302, USA)

  • GARY KOCHENBERGER

    (University of Colorado Denver, 1250 14th Street, Suite 215, Denver, Colorado 80202, USA)

  • HAIBO WANG

    (Texas A&M International University, Laredo, TX 78041, USA)

Abstract

Simulation optimization is providing solutions to important practical problems previously beyond reach. This paper explores how new approaches are significantly expanding the power of simulation optimization for managing risk. Recent advances in simulation optimization technology are leading to new opportunities to solve problems more effectively. Specifically, in applications involving risk and uncertainty, simulation optimization surpasses the capabilities of other optimization methods not only in the quality of solutions but also in their interpretability and practicality. In this paper, we demonstrate the advantages of using a simulation optimization approach to tackle risky decisions, by showcasing the methodology on two popular applications from the areas of finance and business process design.

Suggested Citation

  • Marco Better & Fred Glover & Gary Kochenberger & Haibo Wang, 2008. "Simulation Optimization: Applications In Risk Management," International Journal of Information Technology & Decision Making (IJITDM), World Scientific Publishing Co. Pte. Ltd., vol. 7(04), pages 571-587.
    • Handle: RePEc:wsi:ijitdm:v:07:y:2008:i:04:n:s0219622008003137
    DOI: 10.1142/S0219622008003137
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    Cited by:

    1. Giscard Valonne Mouafo Nebot & Haiyan Wang, 2022. "Port Terminal Performance Evaluation and Modeling," Logistics, MDPI, vol. 6(1), pages 1-22, January.
    2. Jingguo Wang & Raj Sharman & Stanley Zionts, 2012. "Functionality defense through diversity: a design framework to multitier systems," Annals of Operations Research, Springer, vol. 197(1), pages 25-45, August.
    3. Cansu Kandemir & Holly A. H. Handley, 2019. "Work process improvement through simulation optimization of task assignment and mental workload," Computational and Mathematical Organization Theory, Springer, vol. 25(4), pages 389-427, December.
    4. Yin, Peng-Yeng & Wu, Tsai-Hung & Hsu, Ping-Yi, 2017. "Simulation based risk management for multi-objective optimal wind turbine placement using MOEA/D," Energy, Elsevier, vol. 141(C), pages 579-597.
    5. Oleksandr Romanko & Helmut Mausser, 2016. "Robust scenario-based value-at-risk optimization," Annals of Operations Research, Springer, vol. 237(1), pages 203-218, February.
    6. Oleksandr Romanko & Helmut Mausser, 2016. "Robust scenario-based value-at-risk optimization," Annals of Operations Research, Springer, vol. 237(1), pages 203-218, February.
    7. Majda Lachhab & Cédrick Béler & Erlyn Solano-Charris & Thierry Coudert, 2017. "Towards an integration of systems engineering and project management processes for a decision aiding purpose," Post-Print hal-01658004, HAL.

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