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An optimization of the chemical product portfolio to reduce the profit volatility caused by the price fluctuations

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2 Author(s)
Jeong-Ho Park ; Dept. of Chem. & Biomolecular Eng., Korea Adv. Inst. of Sci. & Technol., Daejeon ; Sun-Won Park

The prices of chemical products are fluctuated by several factors. The chemical companies can't predict and be ready to all of these changes, so they are exposed to the risk of a profit fluctuation. But they can reduce this risk by making a well-diversified product portfolio. This problem can be thought as the optimization of the product portfolio. We assume that the profits come from the 'spread' between a naphtha and a chemical product. We calculate a mean and a variation of each spread and develop an automatic module to calculate the optimal portion of each product. The theory is based on the Markowitz portfolio management. It maximizes the expected return while minimizing the volatility. At last we draw an indifference curve to compare each alternative and to demonstrate the superiority

Published in:

SICE-ICASE, 2006. International Joint Conference

Date of Conference:

18-21 Oct. 2006