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A column generation heuristic for districting the price of a financial product

Author

Listed:
  • Pierre de la Poix de Fréminville

    (Artelys, Paris, France)

  • Guy Desaulniers

    (1] Department of Mathematics and Industrial Engineering, Polytechnique Montréal, Montréal, Canada[2] GERAD, Montréal, Canada)

  • Louis-Martin Rousseau

    (1] Department of Mathematics and Industrial Engineering, Polytechnique Montréal, Montréal, Canada[2] CIRRELT, Montréal, Canada)

  • Sylvain Perron

    (1] GERAD, Montréal, Canada[2] Department of Management Sciences, HEC Montréal, Montréal, Canada)

Abstract

This paper studies a districting problem that arises in the context of financial product pricing. The challenge lies in partitioning a set of small geographical regions into a set of larger territories. In each territory, the customers will share a common price. These territories need to be contiguous, contain enough customers and be as homogeneous as possible in terms of customer value. To address this problem, we present a column generation-based heuristic where the subproblem generates contiguous territories taken into account a nonlinear objective function. Computational results indicate that the territories produced by this heuristic are about 35% more homogeneous than those previously used in practice. The developed algorithm has been transferred to a financial firm and is now used to help craft more competitive financial products.

Suggested Citation

  • Pierre de la Poix de Fréminville & Guy Desaulniers & Louis-Martin Rousseau & Sylvain Perron, 2015. "A column generation heuristic for districting the price of a financial product," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 66(6), pages 965-978, June.
    • Handle: RePEc:pal:jorsoc:v:66:y:2015:i:6:p:965-978
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    Citations

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    Cited by:

    1. Luis Henrique Pauleti Mendes & Fábio Luiz Usberti & Celso Cavellucci, 2022. "The Capacitated and Economic Districting Problem," INFORMS Journal on Computing, INFORMS, vol. 34(4), pages 2003-2016, July.
    2. Torkil Kollsker & Thomas J. R. Stidsen, 2021. "Optimisation and Static Equilibrium of Three-Dimensional LEGO Constructions," SN Operations Research Forum, Springer, vol. 2(2), pages 1-52, June.
    3. Antonio Diglio & Stefan Nickel & Francisco Saldanha-da-Gama, 2020. "Towards a stochastic programming modeling framework for districting," Annals of Operations Research, Springer, vol. 292(1), pages 249-285, September.
    4. Bender, Matthias & Kalcsics, Jörg & Nickel, Stefan & Pouls, Martin, 2018. "A branch-and-price algorithm for the scheduling of customer visits in the context of multi-period service territory design," European Journal of Operational Research, Elsevier, vol. 269(1), pages 382-396.
    5. Sandoval, M. Gabriela & Álvarez-Miranda, Eduardo & Pereira, Jordi & Ríos-Mercado, Roger Z. & Díaz, Juan A., 2022. "A novel districting design approach for on-time last-mile delivery: An application on an express postal company," Omega, Elsevier, vol. 113(C).

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