Technical Note—Stochastic Optimization with Decisions Truncated by Positively Dependent Random Variables

Xin Chen () and Xiangyu Gao ()
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Xin Chen: Department of Industrial and Enterprise Systems Engineering, University of Illinois at Urbana–Champaign, Urbana, Illinois 61801
Xiangyu Gao: Department of Decision Sciences and Managerial Economics, CUHK Business School, Chinese University of Hong Kong, Shatin, Hong Kong

Operations Research, 2019, vol. 67, issue 5, 1321-1327

Abstract: We study stochastic optimization problems with decisions truncated by random variables. This paper extends existing results in the literature by allowing positively dependent random variables and a two-part fee structure. We develop a transformation technique to convert the original nonconvex problems to equivalent convex ones. We apply our transformation technique to an inventory substitution model with random supply capacities and a two-part fee cost structure. In addition, we extend our results to incorporate the decision maker’s risk attitude.

Keywords: stochastic optimization; dependent supply capacity uncertainty; two-part fee structure; inventory management; risk aversion (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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