A review of simulation optimization techniques
Proceedings of the 30th conference on Winter simulation
Simulation optimization: a survey of simulation optimization techniques and procedures
Proceedings of the 32nd conference on Winter simulation
Proceedings of the 32nd conference on Winter simulation
Retail expansion decision based on improved marginal analysis
Expert Systems with Applications: An International Journal
Capacity investment decision in co-opetitive network by information sharing
Computers and Industrial Engineering
Decision support for foreign investment strategy under hybrid uncertainty
Expert Systems with Applications: An International Journal
A real option theoretic fuzzy evaluation model for enterprise resource planning investment
Journal of Engineering and Technology Management
| Hi-index | 12.05 |
A right expansion strategy can bring a company more market shares and profits, and hence increase shareholders' equities. However, limited financial resources and various uncertainties require business practitioners to achieve their goals while controlling the risks incurred at an acceptable level. Therefore, justification of expansion investments is an important and complex topic in industry. The traditional investment analysis tools such as net present value (NPV) often tend to undervalue investment decisions. We formulate the expansion investments using real options, and develop a financial model to assess the option value. Monte Carlo simulation is considered a good way to estimate the value of the option. This valuation gives decision makers a way to choose the appropriate expansion strategy based on an integrated view of the market dynamics, but optimization is still a difficult problem to resolve. This paper presents a model of optimization under uncertainty combining system simulation with GA-based optimization to resolve the expansion problem. An industry case is used to demonstrate the application of real options to value expansion investment by using simulation-optimization. This approach also provides some new insights for the real options theory.