Adaption of option pricing algorithm to real time decision optimization in the face of emerging natural hazards

Annett Anders, Kazuyoshi Nishijima

Research output: Chapter in Book/Report/Conference proceedingArticle in proceedingsResearchpeer-review

Abstract

The present paper proposes an approach for the optimization of real time decision problems in the face of emerging natural hazards. It takes basis in the Least Squares Monte Carlo method (the LSM method) originally developed for option pricing in financial mathematics. In the present paper, first the decision problems considered in the paper are described. Then, the fundamental idea underlying the LSM method is introduced. Thereafter, extensions are presented, which are required for the application to the real time decision problems in consideration. The application of the LSM method and these extensions constitute the proposed approach. The performance of the proposed approach is investigated with an example; decision in regard to shut-down of the operation of a platform in the event of an approaching typhoon. The numerical result shows clear advantages of the proposed approach. Finally, possible applications to other engineering decision problems of pre-posterior type are briefly discussed.
Original languageEnglish
Title of host publicationApplications of Statistics and Probability in Civil Engineering
PublisherTaylor & Francis
Publication date2011
Pages452-459
Chapter54
ISBN (Print)978-0-415-66986-3
Publication statusPublished - 2011
Externally publishedYes
Event11th International Conference on Applications of Statistics and Probability in Civil Engineering - Zürich, Switzerland
Duration: 1 Aug 20114 Aug 2011
Conference number: 11

Conference

Conference11th International Conference on Applications of Statistics and Probability in Civil Engineering
Number11
Country/TerritorySwitzerland
CityZürich
Period01/08/201104/08/2011

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