By Chun-hung Chen

With the development of latest computing know-how, simulation is changing into extremely popular for designing huge, complicated and stochastic engineering structures, given that closed-form analytical suggestions as a rule don't exist for such difficulties. even if, the extra flexibility of simulation frequently creates versions which are computationally intractable. in addition, to acquire a valid statistical estimate at a detailed point of self assurance, aRead more...

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**Additional info for Stochastic simulation optimization : an optimal computing budget allocation**

**Example text**

Then we have a total of one million alternative inventory policies for comparison in order to ﬁnd the best design. Simulating all of the 1,000,000 alternative designs becomes infeasible. Some sorts of search like the ones in deterministic optimization must be applied to avoid simulating all the designs while ensuring a high chance of ﬁnding the best or a good design. Some approaches towards simulation optimization in this category include the following: Model-based approaches. Implicitly we assume there is an underlining response function for J(θ).

729. 931. 2. 1. Suppose the estimated variances are smaller: σ12 = 40, and σ22 = 36. All other settings remain the same. What are P {J˜1 < 15}, P {J˜2 > 15}, P {J˜1 < 15 and J˜2 > 15}, and P {J˜1 < J˜2 }? Solution. 989. 2 shows that smaller variance results in higher conﬁdence on what we can infer about the unknown means which we try to estimate using simulation. Not surprisingly, the comparison probability between designs 1 and 2 also becomes higher. May 11, 2010 11:41 34 SPI-B930 9in x 6in b930-ch03 SSO: An Optimal Computing Budget Allocation To improve the simulation precision or enhance these probabilities, we have to increase the number of simulation replications.

The rationale for the adoption of the Bayesian model is the ease of derivation of the solution approach. While the Bayesian model has some advantages in oﬀering intuitive explanations of the methodology development and resulting allocation, the classical (frequentist) model works equally well in 29 May 11, 2010 11:41 30 SPI-B930 9in x 6in b930-ch03 SSO: An Optimal Computing Budget Allocation terms of developing the OCBA schemes. For most of this chapter, we will develop OCBA schemes under the Bayesian setting.