A real options approach for entering the Internet securities trading businesses with start‐up time

This paper uses a real options approach to establish a new evaluation model under uncertainty of both the volume of Internet securities transactions and the total transaction volume of a securities firm. The proposed approach can assist securities firms in evaluating the optimal thresholds for entering the Internet securities trading business and withdrawing from the conventional securities trading business. This paper assumes that the annual number of Internet securities transactions and the total annual number of securities transactions both follow a geometric Brownian motion. Besides, this model considers a start‐up time to complete the entry project's procedure. Accordingly, a decision model based on the real options approach is introduced, and the closed form solutions for the optimal threshold values of the entry or withdrawal models are determined. The conclusions provide some valuable references to help strategic managers of securities firms in making decisions on entering the Internet securities trading business or withdrawing from the conventional trading business. Copyright © 2003 John Wiley & Sons, Ltd.     

An investment model with switching costs and the option to abandon

We develop a complete analysis of a general entry–exit–scrapping model. In particular, we consider an investment project that operates within a random environment and yields a payoff rate that is a function of a stochastic economic indicator such as the price of or the demand for the project’s output commodity. We assume that the investment project can operate in two modes, an “open” one and a “closed” one. The transitions from one operating mode to the other one are costly and immediate, and form a sequence of decisions made by the project’s management. We also assume that the project can be permanently abandoned at a discretionary time and at a constant sunk cost. The objective of the project’s management is to maximise the expected discounted payoff resulting from the project’s management over all switching and abandonment strategies. We derive the explicit solution to this stochastic control problem that involves impulse control as well as discretionary stopping. It turns out that this has a rather rich structure and the optimal strategy can take eight qualitatively different forms, depending on the problems data.     

On Several Two-Boundary Problems for a Particular Class of Lévy Processes

Several two-boundary problems are solved for a special Lévy process: the Poisson process with an exponential component. The jumps of this process are controlled by a homogeneous Poisson process, the positive jump size distribution is arbitrary, while the distribution of the negative jumps is exponential. Closed form expressions are obtained for the integral transforms of the joint distribution of the first exit time from an interval and the value of the overshoot through boundaries at the first exit time. Also the joint distribution of the first entry time into the interval and the value of the process at this time instant are determined in terms of integral transforms.     

Entry and exit decisions with linear costs under uncertainty

From the viewpoint of stochastic programming, we rigorously analyse entry and exit decisions of a project which were proposed by Dixit [A. Dixit, Entry and exit decisions under uncertainty, J. Polit. Econ. 97 (1989), pp. 620–638]. In this article, instead of assuming that the costs are constant in classical research, we assume that they are linear with respect to the price of the commodity produced by the project. Under this assumption, we obtain a condition which guarantees that investing in the project is worthless; besides, the project may be terminated when the commodity price is greater than a certain value. In contrast, there are no such results provided that the costs are constant. Moreover, we provide an explicit solution of entry and exit decisions if the project is worthy to be invested in.     

Hedging Entry and Exit Decisions: Activating and Deactivating Barrier Options

Investment projects and businesses can be entered or exited at a cost, and the theory of real option teaches us how to find optimal activity levels that should trigger entry or exit. However, in practice, different managers or owners operate under different constraints and might apply different thresholds to the same business. We are interested in the hedging of the risk related to the cost of sub-optimal entry or exit. We introduce a new class of derivative products that can hedge this risk. The pricing of these derivatives involves the joint law of a Brownian excursion and its supremum, which is calculated thanks to Bessel processes-related distribution laws.     

Hedging entry and exit decisions: optimizing location under exchange rate uncertainty

^** Email: alexru00{at}ms41.hinet.net^*** Email: ctlin{at}mail.yust.edu.tw The Cobb–Douglas production function with Abel's (1983,Am. Econ. Rev., 173, 228–233) model is extended herein,and real options analysis (ROA) for entry–exit decision-makingestablished utilizing Dixit's (1989b) decision model under exchangerate uncertainty. This work considers the effects of real exchangerates on strategies that determine the locations of productionby firms that are entering markets in two countries. The ROAis also adopted to evaluate the switching location between twocountries. A continuous-time model optimization problem is solvedin closed-form. This provides a useful beginning to an importantanalysis of the effects on industry of exchange rate fluctuationswhen the optimal entry (exit) trigger for transferring locationsis important for a basic global logistics model. Furthermore,a myopic solution of the optimal entry (exit) trigger, sensitivityanalysis and some characteristics of the optimal productionstrategy are sought. This paper contributes to the problem ofchoice of foreign production strategy.     

Portfolio optimization with uncertain exit time in infinite-time horizon

In this paper, we study infinite-period mean-variance formulations for portfolio selections with an uncertain exit time. We employ the convergence control method together with the dynamic programming algorithm to derive analytical expressions for the optimal portfolio policy and the mean-variance efficient frontier under certain conditions. We illustrate these results by an numerical example.     

Applying the maximum NPV rule with discounted/growth factors to a flexible production scale model

This study examines the maximum net present value of the market entry and exit thresholds derived by the traditional net present value method and combines the real options approach for the project investment or disinvestment. The discounted and growth factors are incorporated into the proposed entry and exit models, facilitating the complicated calculations required to identify the discounted and growth rates so as to assess and determine the expected present value of uncertain cash flow streams. Consequently, this investigation successfully combines applying the maximum net present value method and the real options approach to decision-making with the simple consideration of the discounted and growth factors in the flexible production scale model.     

The vehicle routing problem with flexible time windows and traveling times

We generalize the standard vehicle routing problem by allowing soft time window and soft traveling time constraints, where both constraints are treated as cost functions. With the proposed generalization, the problem becomes very general. In our algorithm, we use local search to determine the routes of vehicles. After fixing the route of each vehicle, we must determine the optimal start times of services at visited customers. We show that this subproblem is NP-hard when cost functions are general, but can be efficiently solved with dynamic programming when traveling time cost functions are convex even if time window cost functions are non-convex. We deal with the latter situation in the developed iterated local search algorithm. Finally we report computational results on benchmark instances, and confirm the benefits of the proposed generalization.     

Entry and exit of service providers under cost uncertainty: a real options approach

From a real options perspective, this paper examines a service provider's entry and exit decisions toward two types of service outsourcing contracts under service transaction cost uncertainties. Specifically, for a service contract with a flexible duration, the service provider has an option to terminate the contract at any time point by paying a pre-determined exit penalty. For a contract with a fixed-duration, the service provider is obligated to deliver services for a pre-determined period of time. Under this framework, this study seeks to derive the transaction cost conditions that trigger the service provider’s exercise of entry and exit options. Furthermore, via analytical and numerical examinations, this study also uncovers how service transaction cost uncertainty and other business factors (eg, exit penalty and contract duration) influence the service provider’s entry and exit decisions as well as the choice of contract type (ie, fixed-duration versus flexible-duration).     

制造企业成品出入库两级排队协同服务模型

优化企业成品出入库协同服务水平、平衡工作负荷,从而提高企业仓储服务效率、降低物流成本,是现代制造企业亟待解决的一个重要的管理细节问题。针对这个问题,本研究以仓储入库和出库两个排队过程为研究对象,建立出入库等待时间溢出情景下的两级排队协同服务模型,分析了在排队等待时间控制目标下,出入库员工优化配置方案。该模型引入溢出和串联两个协同服务机制,分三种情景即前方与后方服务台都有空闲,前方繁忙与后方空闲,前方空闲(或繁忙)与后方繁忙,建立了各情景下的系统状态转移方程,求解系统状态的概率,并进而推算出反映系统表现的各项指标,如员工使用率,队列长度,等待时间,以及等待时间超过溢出界值的概率。用制造企业成品出入库管理案例进行验证分析,对企业目前采用的M/M/S出入库排队系统与两级排队协同服务系统进行了数值计算对比。结果表明后者能有效提升出入库服务效率,减少出入库排队系统平均等待时间,降低由于入库和出库两个服务过程效率不均衡而产生的企业内部物流成本,是提升企业内部物流协同管理水平的一个重要方法。其应用可以服务于仓储出入库协同管理的信息化与自动化水平的提高。     

基于资源时间因子的DSM项目群进度优化研究

在项目实践中,由于资源约束,从而会延长项目群的工期。为此,本文引入资源时间因子概念,采用设计结构矩阵(DSM),利用资源进入和退出时间因子矩阵描述了项目任务对资源的需求。提出了基于资源时间因子的遗传粒子群项目群进度优化方法。通过案例计算表明,该法可以有效缩短项目群工期,同时为项目决策者合理增加资源提供了新思路。     

The impact of price skimming on supply and exit decisions

Stochastic inventory control theory has focused on the order and/or pricing policy when the length of the selling period is known. In contrast to this focus, we examine the optimal length of the selling period—which we refer to as market exit time—in the context of a novel inventory replenishment problem faced by a supplier of a new, trendy, and relatively expensive product with a short life cycle. An important characteristic of the problem is that the supplier applies a price skimming strategy over time and the demand is modeled as a nonhomogeneous Poisson process with an intensity that is dependent on time. The supplier's problems of finding the optimal order quantity and market exit time, with the objective of maximizing expected profit, is studied. Procedures are proposed for joint optimization of the objective function with respect to the order quantity and the market exit time. Then, the effects of the order quantity and market exit time on the supplier's profitability are explored on the basis of a quantitative investigation. Copyright © 2014 John Wiley & Sons, Ltd.     

Multilayers in a modulated stochastic game

We are concerned with an antagonistic stochastic game between two players A and B which finds applications in economics and warfare. The actions of the players are manifested by a series of strikes of random magnitudes at random times exerted by each player against his opponent. Each of the assaults inflicts a random damage to enemy's vital areas. In contrast with traditional games, in our setting, each player can endure multiple strikes before perishing. Predicting the ruin time (exit) of player A, along with the total amount of casualties to both players at the exit is a main objective of this work. In contrast to the time sensitive analysis (earlier developed to refine the information on the game) we insert auxiliary control levels, which both players will cross in due game before the ruin of A. This gives A (and also B) an additional opportunity to reevaluate his strategy and change the course of the game. We formalize such a game and also allow the real time information about the game to be randomly delayed. The delayed exit time, cumulative casualties to both players, and prior crossings are all obtained in a closed-form joint functional.     

The first exit time and ruin time for a risk process with reserve-dependent income

This paper investigates the first exit time and the ruin time of a risk reserve process with reserve-dependent income under the assumption that the claims arrive as a Poisson process. We show that the Laplace transform of the distribution of the first exit time from an interval satisfies an integro-differential equation. The exact solution for the classical model and for the Embrechts–Schmidli model are derived.     

在折现率大于零的情况下,具有完成时间和残值不确定性的R&D项目的投资策略

利用随机停时理论 ,考虑 R&D项目的连续投资策略 .在折现率大于零的情况下 ,给出了具有建设期和残值的不确定性的 R&D投资模型、放弃 R&D项目投资的临界值和最优决策规则 ,并讨论参数对临界值的影响 .也进一步验证了随机停时理论和实物期权理论在投资决策分析中的一致性 .     

An iterated local search algorithm for the vehicle routing problem with convex time penalty functions

We propose an iterated local search algorithm for the vehicle routing problem with time window constraints. We treat the time window constraint for each customer as a penalty function, and assume that it is convex and piecewise linear. Given an order of customers each vehicle to visit, dynamic programming (DP) is used to determine the optimal start time to serve the customers so that the total time penalty is minimized. This DP algorithm is then incorporated in the iterated local search algorithm to efficiently evaluate solutions in various neighborhoods. The amortized time complexity of evaluating a solution in the neighborhoods is a logarithmic order of the input size (i.e., the total number of linear pieces that define the penalty functions). Computational comparisons on benchmark instances with up to 1000 customers show that the proposed method is quite effective, especially for large instances.     

Debt recapitalization and value in waiting to finance a project

This paper shows that an option to recapitalize with debt accelerates the exercise of a real option to start an irreversible project investment. The debt-recapitalization add-on, while not directly affecting project cash flows, influences the timing of the project start by offering an extra gain from tax savings less debt costs. This finding demonstrates that capital structure decisions are closely linked to project investment decisions, a deviation from the standard optimal investment rule of the real option theory.     

How real option disinvestment flexibility augments project NPV

In this article we show how a project’s option value increases with incremental levels of investment and disinvestment flexibility. We do this by presenting two NPV and seven option pricing models in a strict sequence of increasing flexibility. We illustrate each with numerical examples and determine the maximum value that a project option could ever support. We show that managerial consideration of exit options at the time of project initiation can add value.     

Modeling framework for optimal evacuation of large-scale crowded pedestrian facilities

The paper presents a simulation–optimization modeling framework for the evacuation of large-scale pedestrian facilities with multiple exit gates. The framework integrates a genetic algorithm (GA) and a microscopic pedestrian simulation–assignment model. The GA searches for the optimal evacuation plan, while the simulation model guides the search through evaluating the quality of the generated evacuation plans. Evacuees are assumed to receive evacuation instructions in terms of the optimal exit gates and evacuation start times. The framework is applied to develop an optimal evacuation plan for a hypothetical crowded exhibition hall. The obtained results show that the model converges to a superior optimal evacuation plan within an acceptable number of iterations. In addition, the obtained evacuation plan outperforms conventional plans that implement nearest-gate immediate evacuation strategies.