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

Ignacio Rios, Andres Weintraub and Roger J.-B. Wets

Quantitative Finance, 2016, vol. 16, issue 2, 189-199

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.

Date: 2016
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DOI: 10.1080/14697688.2015.1114365

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