Quasi-Monte Carlo methods for linear two-stage stochastic programming problems

• Published in: Mathematical programming 2015-06, Vol.151 (1), p.315-345
• Main Authors: Leövey, H., Römisch, W.
• Format: Article
• Language: English
• Subjects: Algorithms; Calculus of Variations and Optimal Control; Optimization; Combinatorics; Full Length Paper; Mathematical and Computational Physics; Mathematical Methods in Physics; Mathematics; Mathematics and Statistics; Mathematics of Computing; Monte Carlo simulation; Numerical Analysis; Principal components analysis; Probability; Probability distribution; Production planning; Stochastic models; Studies; Theoretical
• ISSN: 0025-5610; 1436-4646
• DOI: 10.1007/s10107-015-0898-x

Quasi-Monte Carlo (QMC) algorithms are studied for generating scenarios to solve two-stage linear stochastic programming problems. Their integrands are piecewise linear-quadratic, but do not belong to the function spaces considered for QMC error analysis. We show that under some weak geometric condition on the two-stage model all terms of their ANOVA decomposition, except the one of highest order, are continuously differentiable and second order mixed derivatives exist almost everywhere and belong to L 2 . This implies that randomly shifted lattice rules may achieve the optimal rate of convergence O ( n - 1 + δ ) with δ ∈ ( 0 , 1 2 ] and a constant not depending on the dimension if the effective superposition dimension is less than or equal to two. The geometric condition is shown to be satisfied for almost all covariance matrices if the underlying probability distribution is normal. We discuss effective dimensions and techniques for dimension reduction. Numerical experiments for a production planning model with normal inputs show that indeed convergence rates close to the optimal rate are achieved when using randomly shifted lattice rules or scrambled Sobol’ point sets accompanied with principal component analysis for dimension reduction.