Risk exposure and Lagrange multipliers of nonanticipativity constraints in multistage stochastic problems

Risk exposure and Lagrange multipliers of nonanticipativity constraints in multistage stochastic problems

0.00 Avg rating0 Votes
Article ID: iaor20133821
Volume: 77
Issue: 3
Start Page Number: 393
End Page Number: 405
Publication Date: Jun 2013
Journal: Mathematical Methods of Operations Research
Authors: , ,
Keywords: risk
Abstract:

We take advantage of the interpretation of stochastic capacity expansion problems as stochastic equilibrium models for assessing the risk exposure of new equipment in a competitive electricity economy. We develop our analysis on a standard multistage generation capacity expansion problem. We focus on the formulation with nonanticipativity constraints and show that their dual variables can be interpreted as the net margin accruing to plants in the different states of the world. We then propose a procedure to estimate the distribution of the Lagrange multipliers of the nonanticipativity constraints associated with first stage decisions; this gives us the distribution of the discounted cash flow of profitable plants in that stage.

Reviews

Required fields are marked *. Your email address will not be published.