A Four-Moments Alternative to Simulation for a Class of Stochastic Management Models

John F. Kottas and Hon-Shiang Lau
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John F. Kottas: College of William and Mary
Hon-Shiang Lau: Washington State University

Management Science, 1982, vol. 28, issue 7, 749-758

Abstract: This paper presents a computational alternative to simulation for a large class of stochastic management models involving functions of random variables. An example of a model in this class is the well-known "risk analysis" problem studied by Hertz and Hillier. Our computational approach includes (i) a versatile framework to describe the univariate and dependence characteristics of a model's random variables, and (ii) formulas for computing the central moments of the model's objective variable. The usefulness of these central moments in decision making is then illustrated and discussed.

Keywords: finance: capital budgeting; probability: distributions; statistics (search for similar items in EconPapers)
Date: 1982
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:28:y:1982:i:7:p:749-758

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