IE 425: STOCHASTIC MODELS IN OPERATIONS RESEARCH

Spring 2015
Lectures: MWF 1:25 - 2:15 pm (January 12 - May 1); Classroom: 102 Leonhard

Instructor
Office Hours

Dr. Jos A. Ventura, 356 Leonhard Bldg., 865-3841, javentura@psu.edu

MF 11:00 am - 12:30 pm (or by appointment)

TA
Office Hours

Sang Jin Kweon, 232 Leonhard Bldg., 863-2844, svk5333@psu.edu

MW 11:30 am - 1:00 pm, F 11:00 am - 1:00 pm (or by appointment)

Prerequisite
Concurrent

Math 220 (Matrices) and IE 322 (Probabilistic Models in IE)

IE 405 (Deterministic Models in OR)

Objective

The field of operations research focuses on model development, analysis, and implementation of
quantitative methods to support effective management decision-making. This course will introduce
students to several important types of mathematical and stochastic (probabilistic) models, and
solution techniques, including dynamic programming, stochastic processes, queueing models,
inventory control, supply chain management, and revenue management. Such models and techniques
can provide valuable insights into several design and planning problems, and thus facilitate their
effective analysis.

Textbook

F.S. Hillier and G.J. Lieberman, Introduction to Operations Research, 10th Ed., McGraw Hill, 2014.

References

A. Ravindran, D. Phillips, and J. Solberg, Operations Research: Principles and Practice, 2nd Ed.,
John Wiley & Sons, 1987.
W.L. Winston, Introduction to Probability Models: Operations Research, Volume II, 4th Ed., Cengage
Learning, 2003.
H.A. Taha, Operations Research: An Introduction, 9th Ed., Prentice Hall, 2010.

Homepage

ANGEL, Penn States web-based Course Management System (CMS): https://cms.psu.edu/.

Homework

Assigned weekly/biweekly; no collected; may use software that comes with text; solutions provided.

Case Study

Novel application of OR in practice; team work (up to 3 students per team); grade based on final
report.

Quizzes

Given on Fridays (last 15 min. of lecture), few will be take-home; dates and material covered
will be posted on ANGELs course schedule; closed book/notes; can miss two; there will be no makeups.

Exams

Two midterm exams (closed-book, one sheet of notes is allowed) and a final exam (comprehensive,
closed-book, three sheets of notes are allowed); duration: 2 hours; see dates and material covered on
ANGELs course schedule and Calendar of Events.

Grading

20% Midterm # 1
20% Midterm # 2

25% Quizzes
25% Final

10% Case Study

Grading
Disagreements Re-grade requests for grader omission or oversight only must be submitted within five days of the
class period in which the graded item is returned. No requests will be considered after that time.
Academic
Integrity
According to the University Advising Handbook, academic integrity is the pursuit of scholarly
activity free from fraud and deception, and is the educational objective of this institution. Academic
dishonesty includes, but is not limited to cheating, plagiarism, fabrication of information or
citations, facilitating acts of academic dishonesty by others, unauthorized possession of
examinations, submitting work of another person, or work previously used without informing the
instructor, or tampering with the academic work of other students. Any violation of academic
integrity will be thoroughly investigated, and dealt with severely according to the limits of the
code.
ABET

Outcomes

2.5 Formulate, solve, and analyze real problems using Markov chains, dynamic programming,
queueing theory, and inventory models.
4.2 Demonstrate knowledge of contemporary issues (supply chain and revenue management)

Notes

Bring a scientific calculator to classes, quizzes, and exams.

There will be review sessions scheduled one or two days before exams.

Topic Outline
Date(s)

Topic

January 12

Course Overview
Dynamic Programming (DP): principle of
optimality; formulation of deterministic and stochastic
DP models - examples; discounting; computational
effort.
Stochastic Processes: introduction and
terminology; Markovian and stationary properties;
transition and state probabilities; ChapmanKolmogorov equations; discrete-time Markov chains;
steady-state probabilities; first passage times and
recurrence times; classification of states; absorption
probabilities; continuous-time Markov chains.
Queueing Theory: queueing processes and
terminology; Littles formula; Exponential and Poisson
distributions; balance equations; basic queueing
models (M/M/1, M/M/s, M/M/1/N, and M/M/s/N); infinite
queues in series and Jackson networks.
Applications of Queueing Theory: waiting cost
functions - examples; decision models - examples.
Inventory Models: setup, holding, and shortage
costs; deterministic economic order quantity (EOQ)
models; EOQ model with quantity discounts; dynamic
programming models; newsvendor model; stochastic
inventory models; applications to supply chain
networks.
Revenue Management: demand management
decisions; model for capacity-controlled discount
fares; overbooking model.

January 14-16,
21-26

January 28 February 18

February 18 March 6,

March 16 - 20

March 23 April 17

April 20 May 1

Reading Assignment
H&L: Chapter 1
H&L: Chapter 10 (9th Ed)
or Chapter 11 (10th Ed)
Handout

H&L: Chapter 16 (9th Ed)

or Chapter 29 (10th Ed)
Handouts

H&L: Chapter 17
Handouts
H&L: Chapter 26
Handout

H&L: Sections 18.1-18.6

Handouts

H&L: Sections 18.7-18.8

Handout

Calendar of Events
Date(s)
January 12
January 19
January 21
January 23
January 30
February 6
February 13
February 26
March 2
March 8 - 14
March 20
March 27
April 2
April 10
April 17

Event
Classes begin.
Martin Luther King Day - no classes
Regular drop deadline
Quiz # 1 (duration: 15 min)
Quiz # 2 (duration: 15 min)
Quiz # 3 (duration: 15 min)
Quiz # 4 (duration: 15 min).
Midterm # 1 (6:30 - 8:30 pm, 22 Deike);
Contents: Dynamic programming and Discrete-time Markov Chains
Case Study: Team formation and start date
Spring Break - no classes
Quiz # 5 (duration: 15 min)
Quiz # 6 (duration: 15 min)
Midterm # 2 (6:30 - 8:30 pm, 22 Deike);
Contents: Continuous-time Markov Chains, and Queueing Theory and Applications
Late drop deadline; Case study: Final report due
Quiz # 7 (duration: 15 min)
3

April 24
May 1
TBD

Quiz # 8 (duration: 15 min)

Classes end; Withdrawal deadline
Final Exam (duration: 2 hours); Contents: one question (Discrete-Time Stochastic or Queueing
Models), and three questions (Inventory Models, Supply Chain, and Revenue Management)