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Stochastic Programming with Multivariate Second Order Stochastic Dominance Constraints with Applications in Portfolio Optimization

Stochastic Programming with Multivariate Second Order Stochastic Dominance Constraints with... In this paper we study optimization problems with multivariate stochastic dominance constraints where the underlying functions are not necessarily linear. These problems are important in multicriterion decision making, since each component of vectors can be interpreted as the uncertain outcome of a given criterion. We propose a penalization scheme for the multivariate second order stochastic dominance constraints. We solve the penalized problem by the level function methods, and a modified cutting plane method and compare them to the cutting surface method proposed in the literature. The proposed numerical schemes are applied to a generic budget allocation problem and a real world portfolio optimization problem. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Mathematics and Optimization Springer Journals

Stochastic Programming with Multivariate Second Order Stochastic Dominance Constraints with Applications in Portfolio Optimization

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References (29)

Publisher
Springer Journals
Copyright
Copyright © 2014 by Springer Science+Business Media New York
Subject
Mathematics; Calculus of Variations and Optimal Control; Optimization; Systems Theory, Control; Theoretical, Mathematical and Computational Physics; Mathematical Methods in Physics; Numerical and Computational Physics
ISSN
0095-4616
eISSN
1432-0606
DOI
10.1007/s00245-014-9236-6
Publisher site
See Article on Publisher Site

Abstract

In this paper we study optimization problems with multivariate stochastic dominance constraints where the underlying functions are not necessarily linear. These problems are important in multicriterion decision making, since each component of vectors can be interpreted as the uncertain outcome of a given criterion. We propose a penalization scheme for the multivariate second order stochastic dominance constraints. We solve the penalized problem by the level function methods, and a modified cutting plane method and compare them to the cutting surface method proposed in the literature. The proposed numerical schemes are applied to a generic budget allocation problem and a real world portfolio optimization problem.

Journal

Applied Mathematics and OptimizationSpringer Journals

Published: Aug 1, 2014

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