Simulated Annealing Algorithm as Heuristic Search Method in the Weibull Distribution for Investment Return Modelling

Abstract

AbstractIn this paper, a modified internal rate of return (MIRR) has been presented on the assumption of Weibull distribution to investigate the investment's attractiveness in the Malaysian property development sector (MPDS). The research intends is to produce parameters estimates of the Weibull distribution for investment analysis for a long-time investment period. The MIRR data were obtained from the company financial report for 5 years investment period from 2010–2014. The Maximum likelihood estimation method has been incorporated with the Simulated annealing algorithm (SA) in estimating the parameters of Weibull distribution. The shape parameter of the Weibull distribution reflects the effectiveness in maximizing the investment return based on MIRR with lower returns and is represented as the slope of the fitted line on a Weibull probability plot. The Weibull parameter estimated using Simulated annealing (SAA) has been compared with the existing Weibull parameter estimation methods. The finding reveals that the proposed methods have good agreement with other methods used for Weibull parameter estimates based on MIRR data. The research is expected to provide an overview of the investment behaviour for the long term investment period. Therefore, the new approach based on SA in estimating the parameters Weibull function can serve as a good alternative approach for the assessment of the rate of return on investment potential.KeywordsModified internal rate of returnWeibull distributionMaximum likelihoodSimulated annealing algorithmGoodness-of-fit tests