Selecting the Best Alternative Based on Its Quantile
Demet Batur, F. Fred Choobineh
INFORMS Journal on Computing · 2021 · Volume 33 · Issue 2
Abstract
A value-at-risk, or quantile, is widely used as an appropriate investment selection measure for risk-conscious decision makers. We present two quantile-based sequential procedures—with and without consideration of equivalency between alternatives—for selecting the best alternative from a set of simulated alternatives. These procedures asymptotically guarantee a user-defined target probability of correct selection within a prespecified indifference zone. Experimental results demonstrate the trade-off between the indifference-zone size and the number of simulation iterations needed to render a correct selection while satisfying a desired probability of correct selection.
Keywords
risk, quantile, selection procedure, simulation
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