Title: Incorporating uncertainty in optimal investment decisions

Authors: Athanasios Rentizelas, Georgios Tziralis, Konstantinos Kirytopoulos

Addresses: Sector of Industrial Management and Operational Research, Mechanical Engineering School, National Technical University of Athens, 9 Iroon Polytechniou Street, 15780 Athens, Greece. ' Sector of Industrial Management and Operational Research, Mechanical Engineering School, National Technical University of Athens, 9 Iroon Polytechniou Street, 15780 Athens, Greece. ' Financial and Management Engineering Department, Business School, University of the Aegean, 31 Fostini Street, 82100 Chios, Greece

Abstract: Investment decisions are now more crucial than ever. The investors are in need of sound arguments, which will be able to shape the investment specifications and appraise their uncertain nature. This paper proposes an innovative approach that merges optimisation and risk analysis in one single method. The two-step investment appraisal approach reaches an optimum through a Genetic Algorithm optimisation and then assesses the environment|s risk through a Monte Carlo simulation. The approach, thus, offers the best investment characteristics, as well as information about its implied risk. The use of the method is illustrated through an extensive Case Study.

Keywords: investment appraisal; genetic algorithms; GA; Monte Carlo simulation; MCS; risk assessment; project management; uncertainty; investment decisions.

DOI: 10.1504/WREMSD.2007.014046

World Review of Entrepreneurship, Management and Sustainable Development, 2007 Vol.3 No.3/4, pp.273 - 283

Published online: 13 Jun 2007 *

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