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

Gauthier Maere d’Aertrycke (), Alexander Shapiro () and Yves Smeers ()

Mathematical Methods of Operations Research, 2013, vol. 77, issue 3, 393-405

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. Copyright Springer-Verlag Berlin Heidelberg 2013

Date: 2013
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DOI: 10.1007/s00186-012-0423-4

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