Optimization Under First Order Stochastic Dominance Constraints
AbstractWe consider stochastic optimization problems involving stochastic dominance constraints of first order, also called stochastic ordering constraints. They are equivalent to a continuum of probabilistic constraints or chance constraints. We develop first order necessary and sufficient conditions of optimality for these models. We show that the Lagrange multipliers corresponding to stochastic dominance constraints are piecewise constant nondecreasing utility functions. These results extend our theory of stochastic dominance-constrained optimization to the first order case, in which the main challenge is the potential non- convexity of the problem. We also show that the convexification of stochastic ordering relation is equivalent to second order stochastic dominance under rather weak assumptions. This paper appeared as "Semi-Infinite Probabilistic Optimization: First Order Stochastic Dominance Constraints" in "Optimization" 53(2004) 583-- 601.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series GE, Growth, Math methods with number 0403002.
Date of creation: 05 Mar 2004
Date of revision: 07 Aug 2005
Note: Type of Document - pdf; prepared on WinXP; to print on any;
Contact details of provider:
Web page: http://220.127.116.11
Stochastic dominance; stochastic ordering; stochastic programming; utility functions; semi-infinite optimization; optimality conditions; convexification.;
Find related papers by JEL classification:
- C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
- D5 - Microeconomics - - General Equilibrium and Disequilibrium
- D9 - Microeconomics - - Intertemporal Choice
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Darinka Dentcheva & Andrzej Ruszczynski, 2004. "Convexification of Stochastic Ordering," GE, Growth, Math methods 0402005, EconWPA, revised 05 Aug 2005.
- Ronald E. Gangnon & William N. King, 2002. "Minimum distance estimation of the distribution functions of stochastically ordered random variables," Journal of the Royal Statistical Society Series C, Royal Statistical Society, vol. 51(4), pages 485-492.
- Hadar, Josef & Russell, William R, 1969. "Rules for Ordering Uncertain Prospects," American Economic Review, American Economic Association, vol. 59(1), pages 25-34, March.
- A. Charnes & W. W. Cooper & G. H. Symonds, 1958. "Cost Horizons and Certainty Equivalents: An Approach to Stochastic Programming of Heating Oil," Management Science, INFORMS, vol. 4(3), pages 235-263, April.
- Andrey Lizyayev, 2010. "Stochastic Dominance Efficiency Analysis of Diversified Portfolios: Classification, Comparison and Refinements," Tinbergen Institute Discussion Papers 10-084/2, Tinbergen Institute.
- Christian Tassak & Jules SADEFO KAMDEM & Louis Aimé Fono, 2012. "Dominances on fuzzy variables based on credibility measure," Working Papers hal-00796215, HAL.
- Darinka Dentcheva & Andrzej Ruszczynski, 2005. "Inverse stochastic dominance constraints and rank dependent expected utility theory," GE, Growth, Math methods 0503001, EconWPA.
- Miguel Carrión & Uwe Gotzes & Rüdiger Schultz, 2009. "Risk aversion for an electricity retailer with second-order stochastic dominance constraints," Computational Management Science, Springer, vol. 6(2), pages 233-250, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.