Robustness in stochastic programs with risk constraints

Robustness in stochastic programs with risk constraints

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Article ID: iaor20126089
Volume: 200
Issue: 1
Start Page Number: 55
End Page Number: 74
Publication Date: Nov 2012
Journal: Annals of Operations Research
Authors: ,
Keywords: risk, programming: probabilistic
Abstract:

This paper is a contribution to the robustness analysis for stochastic programs whose set of feasible solutions depends on the probability distribution P. For various reasons, probability distribution P may not be precisely specified and we study robustness of results with respect to perturbations of P. The main tool is the contamination technique. For the optimal value, local contamination bounds are derived and applied to robustness analysis of the optimal value of a portfolio performance under risk‐shaping CVaR constraints. A new robust portfolio efficiency test with respect to the second order stochastic dominance criterion is suggested and the contamination methodology is exploited to analyze its resistance with respect to additional scenarios.

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