Risk neutral reformulation approach to risk averse stochastic programming

Rui Peng Liu and Alexander Shapiro

European Journal of Operational Research, 2020, vol. 286, issue 1, 21-31

Abstract: The aim of this paper is to show that in some cases risk averse multistage stochastic programming problems can be reformulated in a form of risk neutral setting. This is achieved by a change of the reference probability measure making “bad” (extreme) scenarios more frequent. As a numerical example we demonstrate advantages of such change-of-measure approach applied to the Brazilian Interconnected Power System operation planning problem.

Keywords: Stochastic programming; Risk measures; Stochastic dual dynamic programming; Importance sampling (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:286:y:2020:i:1:p:21-31

DOI: 10.1016/j.ejor.2020.01.060

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