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

Pierre de la Poix de Fréminville, Guy Desaulniers, Louis-Martin Rousseau and Sylvain Perron
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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

Journal of the Operational Research Society, 2015, vol. 66, issue 6, 965-978

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.

Date: 2015
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