Scenario Reduction Algorithms in Stochastic Programming

Holger Heitsch, Werner Römisch

Preprint series: Institut für Mathematik, Humboldt-Universität zu Berlin (ISSN 0863-0976),

MSC 2000

90C15 Stochastic programming

We consider convex stochastic programs with an (approximate) initial probability distribution P having finite support supp P, i.e., finitely many scenarios. Such stochastic programs behave stable with respect to perturbations of P measured in terms of a Fortet-Mourier probability metric. The problem of optimal scenario reduction consists in determining a probability measure which is supported by a subset of supp P of prescribed cardinality and is closest to P in terms of such a probability metric. Two new versions of forward and backward type algorithms are presented for computing such optimally reduced probability measures approximately. Compared to earlier versions, the computational performance (accuracy, running time) of the new algorithms is considerably improved. Numerical experience is reported for different instances of scenario trees with computable optimal lower bounds. The test examples also include a ternary scenario tree representing the weekly electrical load process in a power management model.

Keywords: Stochastic programming, probability metric, scenario reduction, scenario tree, electrical load