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Selecting the Best Alternative Based on Its Quantile

Author

Listed:
  • Demet Batur

    (College of Business Administration, University of Nebraska–Lincoln, Lincoln, Nebraska 68588)

  • F. Fred Choobineh

    (Electrical and Computer Engineering, University of Nebraska–Lincoln, Lincoln, Nebraska 68588)

Abstract

A value-at-risk, or quantile, is widely used as an appropriate investment selection measure for risk-conscious decision makers. We present two quantile-based sequential procedures—with and without consideration of equivalency between alternatives—for selecting the best alternative from a set of simulated alternatives. These procedures asymptotically guarantee a user-defined target probability of correct selection within a prespecified indifference zone. Experimental results demonstrate the trade-off between the indifference-zone size and the number of simulation iterations needed to render a correct selection while satisfying a desired probability of correct selection.

Suggested Citation

  • Demet Batur & F. Fred Choobineh, 2021. "Selecting the Best Alternative Based on Its Quantile," INFORMS Journal on Computing, INFORMS, vol. 33(2), pages 657-671, May.
    • Handle: RePEc:inm:orijoc:v:33:y:2021:i:2:p:657-671
    DOI: 10.1287/ijoc.2020.0965
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    References listed on IDEAS

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