Adaptive discretization of convex multistage stochastic programs

Stefan Vigerske, Ivo Nowak

Preprint series: Institut für Mathematik, Humboldt-Universität zu Berlin (ISSN 0863-0976), 18 pages

MSC 2000

90C15 Stochastic programming

Abstract
We propose a new scenario tree reduction algorithm for multistage stochastic programs, which integrates the reduction of a scenario tree into the solution process of the stochastic program. This allows to construct a scenario tree that is highly adapted on the optimization problem.The algorithm starts with a rough approximation of the original tree and locally refines this approximation as long as necessary. Promising numerical results for scenario tree reductions in the settings of portfolio management and power management with uncertain load are presented.