SATEMATIKA, 2008, Special Edition Part Il, 505-512 44 Department of Mathematics, UTM CHARACTERISTICS OF DETERMINISTIC EQUIVALENT MODEL FOR MULTI-STAGE MIXED INTEGER STOCHASTIC PROGRAMS Urvan, *Herman Mawengkang Department of Mathematics, The University of Sumatera Utara Rbetract Stochastic programming is an important tool in medium to long term planning where there are uncertainties inthe data. In this paper, we consider multi-stage mixed integer stechaste a eodel ta neeS model. The model is not well defined, since there are random vectors imposed in the ‘model to present the uncertainties of the model parameter. Therefore a revision of the ‘modeling is shat edling to so-called deterministic equivalents ofthe original model. This paper diseut-es about how to get the deterministic equivalent model and the characteristics of the reeatt mac 1 Introduction Medium to long term planning is essential to the success of business and Project management. In these applications the problem can be divided into multiple stages, usually over tome. Dynamic programming the ability to quantify the risk in different scenarios, Stochastic programming began in the mids 1950s, and was one of the motivations for Dantzig’s seminal ‘This paper discusses about modifying the two-stage stochatic Programming into deterministic Sauivalents model, in such a way that we could solve the original stochastic Programming problem more 2 Stochastic Programs: General Formulation We define the stochastic (linear) program as the following model min go(x,¢) st. £,(x,€)<0, aq)where is a random vector varying over a set EC) !. More precisely, we assume throughout that « Lanuly Fol “events, 1¢ subsets of 5, and the probability distribution P on F are given. Hence for every : sutwet Ac 5 that san events, ie, A € F, the probability P(A) is known. Furthermore, we assume that the functions ¢(1,):5 ->{) Vai are random variables themselves and that the probability distribution P is independent of However, problem (1) is not well define since the meanings of “min: as well as of the constraints are not cleat at all. if we think of taking a decision on x before knowing the realization of & . Therefore a fevision of the modeling process is nevessary, leading to so-called deterministic equivalents for (1), which can be introduced in various ways. 3 Deterministic Equivalents Let us now come back to deterministic equivalents for (1). For instance, in analogy to the particular stovhashc linear program weith recourse, for problem (1) we may proceed as follows. With war 0 ifg.(x.¢)so, £,0,€) otherwise, the th constraint of (1) is violated if and only if g(x.) > 0 for a given decision x and realization € of $. Hence we could provide for each constraint a recourse or second-stage activity y,(€) that, after chserving the reahzation ¢, is chosen such as to compensate its constraints violationvit there is one-by satstying £,(2.5)~9,(§) $0. This extra effort is assumed to cause an extra cost or penalty of 4 per unit, Le our additional costs (called the recourse function) amount to aml Q) LoS) = 8058) + O(x,£) 8) Ox. wmin{ SaaBrin2 45 (oe yielding a total cost-first-stage and recourse cost-of Instead of (2), we might think of a more general linear recourse program with a recourse vector YEE Y CO", (Vis some given polyhedral set, such as {y | y20)), an arbitrary fixed mx matrix w {the recourse matnx) and a corresponding unit cost vector 4 €0", yielding for (3) the Tecourse function x5) =min{g" yl 2 a"(x.8),yer} ® . 7 where 8° (8) = (85 (8) 92058))". i If we think of @ factory producing m products, 8,(4.$) could be understood as the difference 7 » problem (2) could for ‘natance be imterpreted as buying the shortage of products atthe market Prevnee (i) instead cou eal Pe he gq 3 ¢ z 2 f ‘ ctor input y and tom a sod sage or emegeny proton programy cried through with the factor input y and 2 ehnology represented by the matrix WY, Choosing Wl, m x m identity matrix, (2) turns out to "Vath westbo souk think ofa nonearecurse program to dein th recourse function for) or instance Q(Y.g) could be chosen as symyeYcO*}, © Ol g) = min) HZ gy where gil)" (0 and H,:0" 0 aresupposed to be given. : li any case, if it is meaningful and acceptable to the decision maker to minimize the expected Value of the total costs (Le. first-stage and recourse costs), instead of problem (1) we could consider its leterministie equivalent, the (two-stage) stochastic program with recourse min E,fo(%5) = min Ey (g9(x.) + O(x.E)}- © the above Ovo-stage problem is immediately extended to the multistage recourse program as follows: instead of the two decisions x and y, to be taken at stages 1 and 2, we are now faced with K+1 sequential sssisions Xp. 074%, (8, € 0%), to be taken at the subsequent stages + =0,1,---, K.. The term “stages” can, but need not, be interpreted as “times periods”. Assume for simplicity that the objective of (1) is deterministic, ie. B(x.) = g(x). At stage 1(F 21) we know the realizations , of the random vectors &,---, as well as the previous “esisions Xyy-.4,, and we have to decide on x, such that the constraints) (with vector valued constraint functions g. ) Be(or XSi, $0) ‘re satisfied, which-as state-at this stage can only be achieved by the proper choice of ,, based on the ‘nowlege of the previous decisions and realizations, Hence, assuming a cost function 9-(%,), at stage £21 we have a recourse function R= Eq, erie VS yt ZL ence. taking into account the multiple stages, we get as total costs for the multistage problem Lilinsbs AP Cork Basdoo€) 0 prog with course “Avant for the describe dynamic decision problem, the ‘multistage stochastic « ain[soure Fog Qk BiG +4)| ® 507stage) stochastic program with recourse (6) obviously a straight generalization of our former (two-stage) stochastic progr pce ees For the two-stage case, in view of their practical relevance it is worth wile seb : variants of recourse problems in the stochastic linear programming setting. Assume tha ” following stochastic near program ‘Comparing this with the general stochastic program (1), we see that the set Y C()" is specified as {xed"|av=d, x20} Where the mx matriy 4 and the vector b are assumed to be deterministic. In contrast, the m, x7 matrix T(:) and vector A(:) are allowed to depend on the random vector &,, and therefore to have sae random entries themselves. In general, we assume that this dependence on £ € = CO" is given as T()=P ERT, i ACE) =H ER ht, with deterministic matrices 7*,-..,7¥ and vectors fi°,---,t . Observing that the stochastic constraints in (9) are equalities (instead of inequalities, as in the general problem formulation (1)), it seems meaningful to equate their deficiencies, which, using linear recourse and assuming that ¥={yeD*| veoh, according to (4) yields the stochastic linear program with fixed recourse é min, E,{e'x+Q(x,2)} St Ax=b, x20. (i) = where 2 (x6) =-min{g" yy = ME)-TEE)x,y20} 1m particular, we speak of complete fixed recourse if the fted mi x1 recourse matrix Waatisfies {2l2=Wy, y2o}=0" (12) This implies that, whatever the first sta '¢ decision x and the realizations of & turn out to be, Second-stage program a i ZaO(x,$) = min{y! y [Hy = Mg) Tg). e 0} e recuurie, where with the will always be feasible. A special case of complete fixed recourse is simple reciurue, where with identity matrix ! of order my Wie) i) Then the second-stage program reads as QE) =min{(g’y’ y" +09")! y" | y* =" = ME) Ty" 20,9 0} te for q° +g" 20, the re recourse variables y* and ¥> can be chosen to measure (positively) the absolute deficiencies in the stochastic constraints. Generally, we may put all the above problems into the following form. min E,f.(x,2) st. Exf(x,é)s0,i 4s Ezf(x.€)= 0,2 541.0%, xeXcO" (14) where the f, are constructed from the objective and the constraints in (1) or (9) respectively. So far, fo Tepresented the total costs (see(3) or (7)) and f,,---, f, could be used to describe the first-stage feasible set X, However, depending on the way the functions f, are drive from the problem functions g; in (1), this general formulation also includes other types of deterministic equivalents for the stochastic program (1) To give just two examples showing how other deterministic equivalent probleme fey (1) may be zenerated, let us choose first @ €[0,1] and define a “payoff” function for all constraints as ocngye[ing if ¢,(x,€)50,i a otherwise Consequently, for x infeasible at & we have an absolute loss of a retum of I~. It seems natural to aim for decisions on x that, at | © absolute loss. This is equivalent to the requirement, / whereas for x feasible at & we have a least in the mean (i.e, on average), avoid Ex Loagar2o Pefining fo(x.) = Box.) and f(x, £) =-g(x,), we get IE) = Bo (H,E) fee-{e ifg,(2)50, a otherwise (15)implying : Ex f(xé)=-E,9(x,€) $0 7 where, with the vector-valued function g(x,€) =(2)(x.E)y'**s8q (0.6) EH(x.d)= [f(x.e)dP . - dl Facer @ DH? * i Ad? ; =(@-1P({E] g(x.€) $0}) + P({E1 9(x,€) £0}) ‘ Ce caeaa a ETcasaea Wane ea ‘ -P({E1g(x.€)$0}) : Therefore the constraint E;f((x,£) $0 is equivalent to P({E| g(x.€)$0}) 2 ar. Hence, under these : assumptions, (14) reads as mine E;80(%,6) : : (16) { st. P({E| g(x.) <0}),i sm2a | | Problem (16) is called a probability constrained or chance constrained program (or a problem with joint ; probabilistic constraints). ? If instead of (15) we define @, ¢[0,1],7=1,--,m and analogous “payoffs” for every single constraint, resulting in } Sold) = gol.8) fee fe4 eaten al } @, otherwise | then we get from (14) the problem with single (or separate) probabilistic constraints: st. P({E1g,(,2)50}) 20, i= an min,gy E;8(x,) “mza If, in particular, we have that the functions g(x, $) are lin wear in x and if furthermore the set X is convex polyhedral, ie, we have the stochastic linear program 510"min"c’ (x st. Ax=b, TExznGx x20 then problems (16) and (17) become mingey Eze! Bx 8) st. P({E|T(E)x2 A) 2a and, with 7;() and /,(.) denoting the ith row and ith component of 7;(:) and A,(-) respectively, min,.y Eze" (§)x st. P({EIT x2 h(6)}) 24,1 as) the stochastic linear programs with joint and with single chance constraints respectively. Obviously there are many other possibilities to generate types of deterministic equivalents for (1) by constructing the /; in different ways out of the objective and the constraints of (1), Formally, all problems derived, ie. all the above deterministic equivalents, are mathematical Programs. The first question is, whether or under which assumptions do they have properties like senvexity and smoothness such that we have any reasonable chance to deal with them computationally using the toolkit of mathematical programming methods. 4 Multistage models The recourse problem is not restricted to the two-stage formulation. It is possible that observations tremade at T dierent stages and are captured in the information sets {A,)., with A, ¢ A,-~ Ay. “ages correspond to time instances when some information is revealed and a decision can be made. Note that Tis a time index, while T(w) are matrices.) ‘A multistage stochastic program with recourse will have a recourse problem at stage conditioned zm the information provided by A; , which includes all information provided by the information sets ‘ort =1,2,.., t. The program also anticipates the information in (, for = t+ 1,., T. = Let the random vector @ have support = 0; x 02% ++ + Qr, which is the product set of all ‘dividual support sets Q1,1* 1, 2, uu T.w is written componentwise as w = (Wi, ... wy). Denote the Sest-stage variable vector by yo, For each stage f= 1, 2, ., T, define the recourse variable vectes »,€0", the random costfunction ——_gi(y,w) and the random Parameters Lloyd Hon), AC), €O4)- The multistage program, which extends the two-stage model (2.7), is formulated as the following zested optimization problem Sul= 3 a a Minimize — F9)*E) min, aod + A] min, arom) | + Wn) AO) subjet to 7(m)yo + Cm di (2.15) Ty (wp yp 4 +H (my = Ae HE) yeu For the case of discrete and finitely distributed probability distributions it is again possible to formulate the multistage model into a deterministic equivalent large-scale nonlinear program. 5 Conclusion The model of stochastic programming problem needs to be revisioned into a deterministic equivalent ‘model such that the original problem would be well defined and solvable. This paper has described some possibilities to generate types of deterministic equivalent for model of multi-stage stochastic program. References [1] B. 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