Journal of Petroleum Technology, Vol.53, No.12, 52-53, 2001
Significance of project risking methods on portfolio optimization models
Efficient-frontier theory is gaining acceptance as a part of portfolio analysis. Full stochastic evaluations require management of huge quantities of data. As a result, several current solutions use multiple discrete outcomes to represent any given project, rather than a complete stochastic distribution. Differences between stochastic and discrete outcome evaluations are not significant when price uncertainty is neglected, but inclusion of price leads to significant differences if the resulting correlation is not accounted for.