A column generation heuristic for districting the price of a financial product

This paper studies a districting problem that arises in the context of financial product pricing. The challenge lies in partitioning a set of small geographical regions into a set of larger territories. In each territory, the customers will share a common price. These territories need to be contiguo...

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Bibliographic Details
Published in:The Journal of the Operational Research Society 2015-06, Vol.66 (6), p.965-978
Main Authors: de Fréminville, Pierre de la Poix, Desaulniers, Guy, Rousseau, Louis-Martin, Perron, Sylvain
Format: Article
Language:English
Subjects:
Algorithms
Business and Management
Clustering
column generation
Customers
districting
financial product pricing
General Paper
General Papers
Heuristic
Investment products
Management
Methods
Operations research
Operations Research/Decision Theory
Prices
Pricing policies
Studies
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Summary:This paper studies a districting problem that arises in the context of financial product pricing. The challenge lies in partitioning a set of small geographical regions into a set of larger territories. In each territory, the customers will share a common price. These territories need to be contiguous, contain enough customers and be as homogeneous as possible in terms of customer value. To address this problem, we present a column generation-based heuristic where the subproblem generates contiguous territories taken into account a nonlinear objective function. Computational results indicate that the territories produced by this heuristic are about 35% more homogeneous than those previously used in practice. The developed algorithm has been transferred to a financial firm and is now used to help craft more competitive financial products.
ISSN:0160-5682
1476-9360
DOI:10.1057/jors.2014.64