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Barycentric Bounds in Stochastic Programming: Theory and Application

In: Stochastic Programming

Author

Listed:
  • Karl Frauendorfer

    (University of St. Gallen)

  • Daniel Kuhn

    (Imperial College of Science, Technology and Medicine)

  • Michael Schürle

    (University of St. Gallen)

Abstract

The design and analysis of efficient approximation schemes are of fundamental importance in stochastic programming research. Bounding approximations are particularly popular for providing strict error bounds that can be made small by using partitioning techniques. In this chapter we develop a powerful bounding method for linear multistage stochastic programs with a generalized nonconvex dependence on the random parameters. Thereby, we establish bounds on the recourse functions as well as compact bounding sets for the optimal decisions. We further demonstrate that our bounding methods facilitate the reliable solution of important real-life decision problems. To this end, we solve a stochastic optimization model for the management of nonmaturing accounts and compare the bounds on maximum profit obtained with different partitioning strategies.

Suggested Citation

  • Karl Frauendorfer & Daniel Kuhn & Michael Schürle, 2010. "Barycentric Bounds in Stochastic Programming: Theory and Application," International Series in Operations Research & Management Science, in: Gerd Infanger (ed.), Stochastic Programming, chapter 0, pages 67-96, Springer.
    • Handle: RePEc:spr:isochp:978-1-4419-1642-6_5
    DOI: 10.1007/978-1-4419-1642-6_5
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