EconPapers    
Economics at your fingertips  
 

On conditional cuts for stochastic dual dynamic programming

W. Ackooij () and X. Warin ()
Additional contact information
W. Ackooij: OSIRIS
X. Warin: OSIRIS

EURO Journal on Computational Optimization, 2020, vol. 8, issue 2, No 3, 173-199

Abstract: Abstract Multistage stochastic programs arise in many applications from engineering whenever a set of inventories or stocks has to be valued. Such is the case in seasonal storage valuation of a set of cascaded reservoir chains in hydro management. A popular method is stochastic dual dynamic programming (SDDP), especially when the dimensionality of the problem is large and dynamic programming is no longer an option. The usual assumption of SDDP is that uncertainty is stage-wise independent, which is highly restrictive from a practical viewpoint. When possible, the usual remedy is to increase the state-space to account for some degree of dependency. In applications, this may not be possible or it may increase the state-space by too much. In this paper, we present an alternative based on keeping a functional dependency in the SDDP—cuts related to the conditional expectations in the dynamic programming equations. Our method is based on popular methodology in mathematical finance, where it has progressively replaced scenario trees due to superior numerical performance. We demonstrate the interest of combining this way of handling dependency in uncertainty and SDDP on a set of numerical examples. Our method is readily available in the open-source software package StOpt.

Keywords: Stochastic programming; SDDP algorithm; Nonsmooth optimization; Conditional expectations; 90C15; 65C35 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s13675-020-00123-y Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:eurjco:v:8:y:2020:i:2:d:10.1007_s13675-020-00123-y

Ordering information: This journal article can be ordered from
http://www.springer. ... search/journal/13675

DOI: 10.1007/s13675-020-00123-y

Access Statistics for this article

EURO Journal on Computational Optimization is currently edited by Martine C. Labbé

More articles in EURO Journal on Computational Optimization from Springer, EURO - The Association of European Operational Research Societies
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2025-03-20
Handle: RePEc:spr:eurjco:v:8:y:2020:i:2:d:10.1007_s13675-020-00123-y