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Building a stochastic programming model from scratch: a harvesting management example

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  • Ignacio Rios
  • Andres Weintraub
  • Roger J.-B. Wets

Abstract

We analyse how to deal with the uncertainty before solving a stochastic optimization problem and we apply it to a forestry management problem. In particular, we start from historical data to build a stochastic process for wood prices and for bounds on its demand. Then, we generate scenario trees considering different numbers of scenarios and different scenario-generation methods, and we describe a procedure to compare the solutions obtained with each approach. Finally, we show that the scenario tree used to obtain a candidate solution has a considerable impact in our decision model.

Suggested Citation

  • Ignacio Rios & Andres Weintraub & Roger J.-B. Wets, 2016. "Building a stochastic programming model from scratch: a harvesting management example," Quantitative Finance, Taylor & Francis Journals, vol. 16(2), pages 189-199, February.
    • Handle: RePEc:taf:quantf:v:16:y:2016:i:2:p:189-199
    DOI: 10.1080/14697688.2015.1114365
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    References listed on IDEAS

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    1. James E. Smith, 1993. "Moment Methods for Decision Analysis," Management Science, INFORMS, vol. 39(3), pages 340-358, March.
    2. Ignacio Rios & Roger Wets & David Woodruff, 2015. "Multi-period forecasting and scenario generation with limited data," Computational Management Science, Springer, vol. 12(2), pages 267-295, April.
    3. Adriana Piazza & Bernardo Pagnoncelli, 2014. "The optimal harvesting problem under price uncertainty," Annals of Operations Research, Springer, vol. 217(1), pages 425-445, June.
    4. Donald L. Keefer & Samuel E. Bodily, 1983. "Three-Point Approximations for Continuous Random Variables," Management Science, INFORMS, vol. 29(5), pages 595-609, May.
    5. Allen C. Miller, III & Thomas R. Rice, 1983. "Discrete Approximations of Probability Distributions," Management Science, INFORMS, vol. 29(3), pages 352-362, March.
    6. Kjetil Høyland & Stein W. Wallace, 2001. "Generating Scenario Trees for Multistage Decision Problems," Management Science, INFORMS, vol. 47(2), pages 295-307, February.
    7. Martell, David L. & Gunn, Eldon A. & Weintraub, Andres, 1998. "Forest management challenges for operational researchers," European Journal of Operational Research, Elsevier, vol. 104(1), pages 1-17, January.
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    Cited by:

    1. Alonso-Ayuso, Antonio & Escudero, Laureano F. & Guignard, Monique & Weintraub, Andres, 2018. "Risk management for forestry planning under uncertainty in demand and prices," European Journal of Operational Research, Elsevier, vol. 267(3), pages 1051-1074.

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