Application of Gray Systems and Fuzzy Sets in Combination with Real Options Theory in Project Portfolio Management

The aim of this paper was to develop methods for addressing the problem of project portfolio selection and present some approaches for evaluating investment portfolio. We proposed two methods for this problem. The first method is based on gray systems and proposed a gray linear programming model. In this regard, first the effective criteria for performance evaluation of project portfolios with literature survey are identified. Then the importance of each is measured with Shannon entropy. For ranking the considered sample, we use gray systems theory. Finally, part investment in each portfolio is determined by the gray linear programming model. The second method is based on the fuzzy ranking method.In this section, 100,000 portfolios are produced by a computer program that each involves 20 different projects the amount of whose investment is between 0 and 100 % . Revenue uncertainty of each portfolio is randomly selected. Then use the ranking index that allows decision maker to compare various portfolios and select the best of them. In both methods, we try to use real options theory concepts as a modern and efficient economic evaluation tool for optimal portfolio selection problem. Applicable examples are used to show the convenience and suitability of the proposed methods.

[1]  Christian Stummer,et al.  Research and development project selection and resource allocation: a review of quantitative modelling approaches , 1999 .

[2]  Xiaotie Deng,et al.  A minimax portfolio selection strategy with equilibrium , 2005, Eur. J. Oper. Res..

[3]  Chiu-Chi Wei,et al.  A new approach for selecting portfolio of new product development projects , 2011, Expert Syst. Appl..

[4]  J. D. Jones,et al.  Calculating functions of fuzzy numbers , 1993 .

[5]  Norman P. Archer,et al.  Project portfolio selection through decision support , 2000, Decis. Support Syst..

[6]  Masahiro Inuiguchi,et al.  Multiobjective credibilistic portfolio selection model with fuzzy chance-constraints , 2013, Inf. Sci..

[7]  Kalevi Kyläheiko,et al.  Dynamic capability view in terms of real options , 2002 .

[8]  Jerzy W. Grzymala-Busse,et al.  Rough Sets , 1995, Commun. ACM.

[9]  Zdenek Zmeskal,et al.  Generalised soft binomial American real option pricing model (fuzzy-stochastic approach) , 2010, Eur. J. Oper. Res..

[10]  Henry Mintzberg,et al.  Strategy safari : a guided tour through the wilds of strategic management , 1998 .

[11]  James Taylor,et al.  A Survival Guide for Project Managers , 1998 .

[12]  Yuji Yoshida.  Optimal Stopping in Fuzzy Stochastic Processes and its Application to Option Pricing in Financial Engineering , 2002 .

[13]  Holger Ernst,et al.  Patent portfolios for strategic R & D planning , 1998 .

[14]  Yen-Chang Chen,et al.  Reservoir operation using grey fuzzy stochastic dynamic programming , 2002 .

[15]  Juite Wang,et al.  A fuzzy set approach for R&D portfolio selection using a real options valuation model , 2007 .

[16]  Vildan Özkir,et al.  A fuzzy assessment framework to select among transportation investment projects in Turkey , 2012, Expert Syst. Appl..

[17]  Kin Keung Lai,et al.  A Fuzzy Mixed Projects and Securities Portfolio Selection Model , 2005, FSKD.

[18]  Vladislav Rajkovic,et al.  Knowledge-based portfolio analysis for project evaluation , 1995, Inf. Manag..

[19]  L. Zadeh.  Fuzzy sets as a basis for a theory of possibility , 1999 .

[20]  Silvia Muzzioli,et al.  A multiperiod binomial model for pricing options in a vague world , 2004 .

[21]  Lotfi A. Zadeh,et al.  Fuzzy Sets , 1996, Inf. Control..

[22]  O. P. Dias,et al.  The R & D project selection problem with fuzzy coefficients , 1988 .

[23]  Robert G. Cooper,et al.  Portfolio Management for New Products (Управление портфелем новых продуктов) , 1998 .

[24]  Mark A. Coffin,et al.  R&D project selection and scheduling with a filtered beam search approach , 1996 .

[25]  Subhankar Karmakar,et al.  GREY FUZZY MULTI-OBJECTIVE OPTIMIZATION , 2008 .

[26]  A. Mukhopadhyay,et al.  OPTIONS FOR MANAGING WATER RESOURCES IN KUWAIT , 2005 .

[27]  Deng Ju-Long,et al.  Control problems of grey systems , 1982 .

[28]  R. Tavakkoli-Moghaddam,et al.  Multi-Criteria Decision Making for Plant Location Selection: An Integrated Delphi–AHP–PROMETHEE Methodology , 2013 .

[29]  Etienne E. Kerre,et al.  On the relationship between some extensions of fuzzy set theory , 2003, Fuzzy Sets Syst..

[30]  Khaled Salah,et al.  Two analytical models for evaluating performance of Gigabit Ethernet hosts with finite buffer , 2006 .

[31]  Zdenek Zmeskal,et al.  Application of the Fuzzy - Stochastic Methodology to Appraising the Firm Value as a European Call Option , 2001, Eur. J. Oper. Res..

[32]  James R. Freeland,et al.  Recent Advances in R&D Benefit Measurement and Project Selection Methods : Management Science , 1975 .

[33]  Masami Yasuda,et al.  A Discrete-Time American Put Option Model with Fuzziness of Stock Prices , 2005, Fuzzy Optim. Decis. Mak..

[34]  Tomislav Mandakovic,et al.  R&D Project Selection Models , 1986 .

[35]  Max P. Michaels,et al.  The real power of real options , 1997 .

[36]  Sheng-Tsaing Tseng,et al.  A Technical Note on , 2009 .

[37]  C. Atzeni,et al.  A fuzzy number ranking in project selection for cultural heritage sites , 2008 .

[38]  Matthew J. Liberatore.  R&D project selection , 1986 .

[39]  D. L. Hall,et al.  An interactive approach for selecting IR&D projects , 1990 .

[40]  Sungjoo Lee,et al.  Managing uncertainty to improve decision-making in NPD portfolio management with a fuzzy expert system , 2012, Expert Syst. Appl..

[41]  Matthew J. Liberatore,et al.  The Practice of Management Science in R&D Project Management : Management Science , 1983 .

[42]  Alan W. Pearson,et al.  Analysis of some portfolio selection models for R&D , 1971 .

[43]  S. Myers.  Determinants of corporate borrowing , 1977 .

[44]  Cengiz Kahraman,et al.  Fuzzy capital rationing model , 2009 .

[45]  Chen-Fu Chien,et al.  A Portfolio-Evaluation Framework for Selecting R&D Projects , 2002 .

[46]  Peter W. G. Morris,et al.  Translating corporate strategy into project strategy: realizing corporate strategy through project management , 2004 .

[47]  Fereidoun Ghasemzadeh,et al.  A zero-one model for project portfolio selection and scheduling , 1999, J. Oper. Res. Soc..

[48]  Zdenek Zmeskal,et al.  Value at risk methodology under soft conditions approach (fuzzy-stochastic approach) , 2005, Eur. J. Oper. Res..

[49]  Masahiro Inuiguchi,et al.  Possibilistic linear programming: a brief review of fuzzy mathematical programming and a comparison with stochastic programming in portfolio selection problem , 2000, Fuzzy Sets Syst..

[50]  Reza Tavakkoli-Moghaddam,et al.  A Hierarchical Group Decision-Making Approach for New Product Selection in a Fuzzy Environment , 2013 .

[51]  Martin Spott,et al.  A theory of possibility distributions , 1999, Fuzzy Sets Syst..

[52]  Mohammad Modarres,et al.  A practical R&D selection model using fuzzy pay-off method , 2012 .

[53]  Behnam Vahdani,et al.  CAD/CAM System Selection: A Multi-Component Hybrid Fuzzy MCDM Model , 2013 .

[54]  Dorota Kuchta,et al.  Fuzzy capital budgeting , 2000, Fuzzy Sets Syst..

[55]  Hans-Jürgen Zimmermann,et al.  Planning models for research and development , 1990 .

[56]  Yuji Yoshida,et al.  A discrete-time model of American put option in an uncertain environment , 2003, Eur. J. Oper. Res..

[57]  Mikael Collan,et al.  A Fuzzy Pay-Off Method for Real Option Valuation , 2009, 2009 International Conference on Business Intelligence and Financial Engineering.

[58]  Prasanta Kumar Dey,et al.  Integrated project evaluation and selection using multiple-attribute decision-making technique , 2006 .

[59]  D. Dubois,et al.  Fuzzy Sets: History and Basic Notions , 2000 .

[60]  D. Dubois,et al.  Fundamentals of fuzzy sets , 2000 .

[61]  Gerald I. Kendall,et al.  Advanced Project Portfolio Management and the PMO: Multiplying ROI at Warp Speed , 2003 .

[62]  Yo-Ping Huang,et al.  The integration and application of fuzzy and grey modeling methods , 1996, Fuzzy Sets Syst..

[63]  Fred Glover,et al.  Selecting Project Portfolios by Optimizing Simulations , 2006 .

[64]  C. Prahalad,et al.  Strategy as stretch and leverage. , 1993, Harvard business review.

[65]  Jerry M. Mendel,et al.  Type-2 fuzzy sets made simple , 2002, IEEE Trans. Fuzzy Syst..

[66]  J. Martino.  Research and Development project selection , 1995 .

[67]  Silvia Muzzioli,et al.  The solution of fuzzy linear systems by non-linear programming: a financial application , 2007, Eur. J. Oper. Res..

[68]  Robert Ivor John,et al.  Type 2 Fuzzy Sets: An Appraisal of Theory and Applications , 1998, Int. J. Uncertain. Fuzziness Knowl. Based Syst..

[69]  Enriqueta Vercher,et al.  A fuzzy ranking strategy for portfolio selection applied to the Spanish stock market , 2007, 2007 IEEE International Fuzzy Systems Conference.

[70]  Teresa León,et al.  A DOWNSIDE RISK APPROACH FOR THE PORTFOLIO SELECTION PROBLEM WITH FUZZY RETURNS , 2004 .

[71]  Noël Amenc,et al.  Portfolio Theory and Performance Analysis , 2003 .

[72]  Mohammad Modarres,et al.  A technical note on “A fuzzy set approach for R&D portfolio selection using a real options valuation model” by Wang and Hwang (2007) , 2011 .

[73]  Sezai Taskin,et al.  1 PERFORMANCE ASSESSMENT OF A COMBINED SOLAR AND WIND SYSTEM , 2009 .

[74]  E. Ertugrul Karsak.  A Generalized Fuzzy Optimization Framework for R&D Project Selection Using Real Options Valuation , 2006, ICCSA.