Decisions regarding the operation of a chemical engineering plant depend on the nature of economic market and process constraints. The operator makes decisions to optimize the economic potential of the plant under uncertainties. In this paper, we integrate financial and process operations for the goal of optimizing the value of plant over time. A suitable value function captures the essence of aforementioned objective and we present various interpretations of results from financial and operational viewpoint. This value function is analogous to the one used for constructing optimal performance portfolio in finance. The optimal portfolio problem solves for the fraction of wealth held under different assets forming a portfolio, which maximizes the expected return for a given uncertainty or minimizes variance for a given level of return. We capture the notion of risk return trade off in a processing industry by treating different reaction processes as assets of a portfolio and minimizing the variance of Net Present Value (NPV) of the portfolio for a given level of expected NPV.

We use lognormal stock pricing model to simulate raw material and product prices. Based on this information we calculate expected NPV of the processes. The objective is to minimize variance in the NPV keeping the expected NPV at a fixed level for a planning horizon. Keeping in mind the process constraints and product demands at each time period we solve the optimization problem to determine optimum purchase and inventory of raw materials. This information is contingent of a specific scenario and we present the decision rules for a set of feasible scenarios.

In addition, we also investigate the impact of using call and put options which are financial contracts employed to hedge risky positions. In particular we study changes in risk-return behavior in response to holding a portfolio of commodities and options and search for optimum processing rules.