Selecting the Best Alternative Based on Its Quantile

Demet Batur () and F. Fred Choobineh ()
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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

INFORMS Journal on Computing, 2021, vol. 33, issue 2, 657-671

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.

Keywords: risk; quantile; selection procedure; simulation (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:inm:orijoc:v:33:y:2021:i:2:p:657-671

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