Polyhedral Risk Measures in Stochastic Programming

Andreas Eichhorn , Werner Römisch

Preprint series: Institut für Mathematik, Humboldt-Universität zu Berlin (ISSN 0863-0976), 2004-5

MSC 2000

90C15 Stochastic programming

Abstract
Stochastic programs that do not only minimize expected cost but also take into account risk are of great interest in many application fields. We consider stochastic programs with risk measures in the objective and study stability properties as well as decomposition structures. Thereby we place emphasis on dynamic models, i.e., multistage stochastic programs with multiperiod risk measures. In this context, we define the class of polyhedral risk measures such that stochastic programs with risk measures taken from this class have favorable properties. polyhedral risk measures are defined as optimal values of certain linear stochastic programs where the arguments of the risk measure appear on the right-hand side of the dynamic constraints. Dual representations for polyhedral risk measures are derived and used to deduce criteria for convexity and coherence. As examples of polyhedral risk measures we propose multiperiod extensions of the conditional-Value-at-Risk.