Recombining Trees for Multistage Stochastic Programs
In order to solve multistage stochastic optimization problems by numerical methods, the underlying stochastic process is usually approximated by a process that takes only a finite number of values. Consequently, the approximating process can be represented by a scenario tree, where the nodes of the tree correspond to the possible realizations of the process and the tree structure is induced by the filtration generated by the process. Unfortunately, the number of nodes can grow exponentially as the number of time stages increases, and the corresponding optimization problem thus becomes quickly intractable. Hence, many problems of practical interest are represented by stochastic programming models that include only either a small number of time stages or a small number of scenarios.
KeywordsStochastic Program Scenario Tree Time Stage Thermal Unit Forward Mode
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