Process Simulation

and Optimization
2140504

Presentation-5

Basic Concepts of Optimization

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Measures of Profitability

Continuity of Function

Convexity and Its Applications

Hessian Metrix

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CHAPTER-I

CHAPTET-2

CHAPTER-3

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CHAPTER-4

CHAPTET-5

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CHAPTER-6

CHAPTET-7

CHAPTER-8

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Measures of profitability / economic performance

• Most often in the chemical process industries the objective function for potential
projects is some measure of profitability.
• The projects with highest priorities are the ones with the highest expected profitability.
• Among the numerous measures of economic performance that have been proposed, two
of the simplest are

1. Payback period (PBP) -how long a project must operate to break even; ignores the
time value of money.
2. Return on investment (ROI) -a simple yield calculation without taking into account the
time value of money
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Measures of profitability / economic performance

What would be the pay back period for an investment of 20,000 INR with a return of 500
INR per week. The PBP is 40 weeks

What would be the rate of Investment for the net return of Rs. 6000. (per year) for an
initial investment of Rs. 45,000. The ROI is 13.3% per year

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 Measures of profitability / economic performance
Two other measures of profitability that take into account the time value of money are:

1. Net present value (NPV) - It is calculated by adding the initial investment to the present value of
the anticipated future positive cash flows
• If the NPV is positive, the investment increases the company's assets: The investment is financially attractive.
• If the NPV is zero, the investment does not change the value of the company's assets: The investment is neutral.
• If the NPV is negative, the investment decreases the company's assets: The investment is not financially attractive.

2. Internal rate of return (IRR) - It is the rate of return (interest rate, discount rate) at which the future
cash flows would equal the initial cash outlay. The value of the IRR relative to the company standards
for internal rate of return indicates the desirability of an investment:
• If the IRR is greater than the designated rate of return, the investment is financially attractive.
• If the IRR is equal to the designated rate of return, the investment is marginal.
• If the IRR is less than the designated rate of return, the investment is financially unattractive.

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Measures of profitability / economic performance

• Numerous other measures of profitability exist, and most companies use more than one.
• Cut-off levels are placed on the measures of profitability.
• So that proposals that fall below the cut-off level are not deemed worthy of consideration.
• Those that fall above the cut-off level can be ranked in order of profitability and examined in
more detail.

In optimization you are interested in

1. PBP: Minimizing the payback period, or
2. NPV: Maximizing the net present value, or
3. IRR: Maximizing the internal rate of return
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Discrete Vs Continuous
We define the property of continuity as follows. A function of a single variable x is
continuous at a point xo if

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Discrete Vs Continuous

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Discrete Vs Continuous
• Objective functions that allow only discrete values of the independent variable occurs
frequently in process design because the process variables assume only specific values
rather than continuous ones.
• Examples are the cost per unit diameter of pipe, the cost per unit area for heat
exchanger surface, or the insulation cost

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 CONVEXITY AND ITS APPLICATIONS
CONVEX SET
A set of points (or a region) is defined as a convex set in n-dimensional space if, for all pairs of
points x1 and x2 in the set, the straight-line segment joining them is also entirely in the set.

A mathematical statement of a convex set is

For every pair of points x1 and x2 in a convex set, the point x given by a linear combination of the two points

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 Convexity and Application

• Convex minimization has applications in a wide range of disciplines other than chemical
engineering optimization, such as automatic control systems, estimation and signal processing,
communications and networks, electronic circuit design, data analysis and modeling, statistics,
and finance.
• With recent improvements in computing and in optimization theory, convex minimization is
nearly as straightforward as linear programming.
• Many optimization problems can be reformulated as convex minimization problems. For
example, the problem of maximizing a concave function f can be re-formulated equivalently as a
problem of minimizing the function -f, which is convex.
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 CONVEX Function
The convex region may be closed (bounded) by a set of functions as shown in previous slide
or may be open (unbounded) as in figures below. Also, the intersection of any number of
convex set is a convex set.

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 Convexity
It is the quality or state of being curved outward : the quality or state of being convex.
If f (x) is convex, - f (x) is concave. A function f (x) defined on a convex set F is said to be
a convex function if the following relation holds

A convex function cannot have any value larger than the values of the function obtained
by linear interpolation between x1 and x2

For the nonlinear programming problem called the convex programming problem

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 Convexity
The following statements are true about the convex minimization problem:
• If a local minimum exists, then it is a global minimum.
• The set of all (global) minima is convex.
• For each strictly convex function, if the function has a minimum, then the minimum is unique.

The main reason for studying Convex Optimization is;

• When convexity is assumed, many significant mathematical results have been derived in the field of
mathematical programming.
• Often results obtained under assumptions of convexity can give insight into the properties of more
general problems. Sometimes, such results may even be carried over to nonconvex problems, but in a
weaker form.
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 Determination of convexity and concavity
For single variable;

• If the second derivative is positive; function is both strictly convex and convex
• If the second derivative is Negative; function is both strictly concave and concave
• If the second derivative is Zero; function is both convex and concave

ANALYSIS FOR CONVEXITY AND CONCAVITY:

1. f(x) = 9x3
2. f(x) = 4x – x2
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 Determination of convexity and concavity
For multi variable;

For a multivariate function, the nature of convexity can best be evaluated by examining
the eigenvalues of f(x) or Hessian

H(x) is another symbol for 2f(x), the matrix of second partial derivative of f(x) with
respect to each xi

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These concepts can be summarized as follows:

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Hessian
Hessian matrix or Hessian is a square matrix of second-order partial derivatives of a
scalar-valued function, or scalar field.
It describes the local curvature of a function of many variables

The Hessian matrix H of f is a

square n×n matrix, usually defined and
arranged as follows shown beside:

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 DETERMINATION OF CONVEXITY AND CONCAVITY

Determine whether the function f(x) = 2x12 - 3xlx2 + 2x22 is convex or concave??

Soln. on board:

Ans.: The eigenvalues of H are 7 and 1, hence H(x) is positive-definite. Consequently,

f(x) is strictly convex (as well as convex).

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 DETERMINATION OF CONVEXITY AND CONCAVITY

Determine whether the function f(x) = x12 + xlx2 + 2x2 + 4 is convex or concave??

Soln. in your note book:

Ans.: Consequently, f(x) does not fall into any of the categories. We conclude that no
unique extremum exists.

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 DETERMINATION OF CONVEXITY AND CONCAVITY

Determine whether the function f(x) = 2x1 + 3x2 + 6 is convex or concave??

Soln. in your note book:

Ans.: The function is both convex and concave.

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x2 7

6 By visual inspection, the region is

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convex. This set of linear
inequality constraints forms a
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convex region because all the
3
constraints are concave. In this
2 case the convex region is closed.
1

0
0 1 2 3 4 5 6 7
x1
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Thank you