Stochastic Chance-Constrained Capital Budgeting with Self-Help

Abstract

This paper discusses the capital budgeting problem in stochastic environment. Different from other researches, in this paper, investment outlays, net cash flows and marginal interest rate are all considered as random variables, and net cash flows during the investment period are considered to support the initial outlays, which is called self-help. Net present value (NPV) method is employed, and two stochastic chance-constrained programming models for capital budgeting are provided. In order to illustrate the modeling idea, two numerical examples are presented and solved by the Monte Carlo simulation-based enumeration method.