SYS-304 Examples { Formulating Optimization Problems Diet Problem

Suppose you can buy the following ve types of food: bread, meat, potatoes, cabbage, and milk. Per pound of each food contains a certain amount of calories, protein, calcium, and vitamin A, and costs some money. These amounts are listed in the following table. You need to depend on these foods to meet your daily requirements of calories, protein, calcium, and vitamin A. Your daily requirements are also listed in the table. The question is: in what amounts you should buy these foods so that the total cost is minimum? bread meat potatoes cabbage milk daily requirement calories 1254 1457 318 46 309 3000 protein 39 73 8 4 16 70 g calcium 418 41 42 141 536 800 mg vitamin A 0 0 70 860 720 500 IU cost/pound $1.20 $2.45 $0.90 $0.50 $1.10

An investor has an initial wealth $5000 that can be used to invest in two potential portfolios. There are three possible scenarios associated with the annual returns of the portfolios: Scenario 1: annual returns of portfolios 1 and 2 are 10% and 12%, respectively, and the probability that this scenario occurs is 0.3; Scenario 2: annual returns of portfolios 1 and 2 are 15% and 10%, respectively, and the probability that this scenario occurs is 0.3; Scenario 3: annual returns of portfolios 1 and 2 are 20% and 18%, respectively, and the probability that this scenario occurs is 0.4. The investor's utility function is ( ) = , where is the nal wealth the investor has. The question is: in what amounts the investor should invest the initial wealth in the two portfolios so that the investor can maximize the total expected utility value after one year?
U w w w

Investment Problem

Diet Problem Decision variables: 1 = amount of bread purchased, 2 = amount of meat purchased, 3 = amount of potatoes purchased, 4 = amount of cabbage purchased, 5 = amount of milk purchased.
x x x x x

Then we have total cost = 1 2 1 + 2 45 2 + 0 9 3 + 0 5 4 + 1 1 5 calories = 1254 1 + 1457 2 + 318 3 + 46 4 + 309 5 protein = 39 1 + 73 2 + 8 3 + 4 4 + 16 5 calcium = 418 1 + 41 2 + 42 3 + 141 4 + 536 5 vitamin A = 70 3 + 860 4 + 720 5
Z : x : x : x x : x : x x x x x x x x x x x x x x x x x x

Formulation { Linear Programming (LP) minimize = 1 2 1 + 2 45 2 + 0 9 3 + 0 5 4 + 1 1 5 subject to 1254 1 + 1457 2 + 318 3 + 46 4 + 309 5  3000 39 1 + 73 2 + 8 3 + 4 4 + 16 5  70 418 1 + 41 2 + 42 3 + 141 4 + 536 5  800 70 3 + 860 4 + 720 5  500 1  0, 2  0, 3  0, 4  0, 5  0
Z : x : x : x : x : x x x x x x x x x x x x x x x x x x x x x x x x

Investment Problem Decision variables: 1 = amount invested in portfolio 1, 2 = amount invested in portfolio 2.
x x

Then one year later, If scenario 1 happens, nal wealth 1 = 1 1 1 + 1 12 2, and utility value ( 1); If scenario 2 happens, nal wealth 2 = 1 15 1 + 1 1 2, and utility value ( 2); If scenario 3 happens, nal wealth 3 = 1 2 1 + 1 18 2, and utility value ( 3). So, total expected utility value one year later is: = 0 3 ( 1) + 0 3 ( 2) + 0 4 ( 3).
w : x : : x U w w x : x U w w : x : x U w Z : U w : U w : U w

Formulation { Nonlinear Programming (NLP) p p p maximize = 0 3 1 1 1 + 1 12 2 + 0 3 1 15 1 + 1 1 2 + 0 4 1 2 1 + 1 18 subject to 1 + 2 = 5000 1  0, 2  0

Z : : x : x : : x : x : : x : x x x x

x2