Dynamic Optimization

Abstract

In this chapter we introduce a markedly different way to formulate and solve optimization problems, compared to the techniques that are introduced in Chapters 2 through 5. The dynamic optimization methods that we introduce here work by decomposing an optimization problem into a successive set of stages, at which the state of the system being optimized is observed and decisions are made. Dynamic optimization techniques require that an optimization problem have certain important characteristics that allow for this decomposition. In this chapter we begin by first introducing a simple problem that can be formulated and solved as a dynamic optimization problem. We then discuss the common elements that must be identified when formulating a dynamic optimization problem and the standard algorithm used to solve them.