Research Reports from the Department of Operations
Document Type
Report
Publication Date
3-1-1970
Abstract
In the general situation in which investments and/or equipment replacements have to be made at several points of time, Reisman and Buffa have developed a model which will reduce to their present worth all disbursements and receipts involved in the possession and operation of a succession of equipments. This paper deals with a stochastic variation of the above model. General expressions are derived for the expected values of the Purchase Prices, Salvage Values, Operating Expenses and Revenues. The model assumes that the lives of equipment are also stochastic in nature. The case when the rate of return is a function of time is also considered. A decision tree approach incorporating the above model is also given. The model is then formulated as a Markovian Sequential Decision chain for which programming algorithms for selecting the optimal policies are available.
Keywords
Stochastic processes, Operations research, Investment analysis, Capital investments, Decision making, Present value analysis, Markov processes, Mathematical optimization
Publication Title
Technical Memorandums from the Department of Operations, School of Management, Case Western Reserve University
Issue
Technical memorandum no. 179
Rights
This work is in the public domain and may be freely downloaded for personal or academic use
Recommended Citation
Reisman, Arnold and Rao, Arza K., "A General Model for Investment Decisions; A Stochastic Extension" (1970). Research Reports from the Department of Operations. 220.
https://commons.case.edu/wsom-ops-reports/220