Two‐stage stochastic optimization problems with stochastic ordering constraints on the recourse

Two‐stage stochastic optimization problems with stochastic ordering constraints on the recourse

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Article ID: iaor20121850
Volume: 219
Issue: 1
Start Page Number: 1
End Page Number: 8
Publication Date: May 2012
Journal: European Journal of Operational Research
Authors: ,
Keywords: stochastic processes, risk
Abstract:

We consider two‐stage risk‐averse stochastic optimization problems with a stochastic ordering constraint on the recourse function. Two new characterizations of the increasing convex order relation are provided. They are based on conditional expectations and on integrated quantile functions: a counterpart of the Lorenz function. We propose two decomposition methods to solve the problems and prove their convergence. Our methods exploit the decomposition structure of the risk‐neutral two‐stage problems and construct successive approximations of the stochastic ordering constraints. Numerical results confirm the efficiency of the methods.

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