Nonlinear model-predictive control (NMPC) and dynamic real-time optimization (DRTO) lead to a substantial improvement of the operation of complex nonlinear processes. Whereas the focus in NMPC is primarily on control performance by minimizing the deviation from a given set-point, the objective in DRTO is to achieve a profitable and flexible operation adapted to changing market conditions and process uncertainties by employing an economic optimization criterion. A method for solving dynamic optimization problems based on neigh boring-extremal updates suitable for applications in NMPC and DRTO is presented in this paper. If process operation is affected by small perturbations, efficient techniques for updating the nominal trajectories based on parametric sensitivities can be applied [J. Kadam, W. Marquardt, Sensitivity-based solution updates in closed-loop dynamic optimization, in: Proceedings of the DYC-OPS 7 Conference, Cambridge, USA, 20041; these updates do not require the solution of the rigorous optimization problem but rely on first and second-order sensitivities computed by composite adjoints. However for larger perturbations and strong nonlinearities, the fast updates obtained by the neighboring-extremal solutions are not sufficiently accurate, and the solution of the nonlinear optimization problem requires further iterations with updated sensitivities to give a feasible and optimal solution. The application of the method to a simulated semi-batch reactor demonstrates its capabilities. The presented method is discussed in comparison to other methods in the literature. (C) 2009 Elsevier Ltd. All rights reserved.