We propose a semidefinite optimization (SDP) model for the class of minimax two-stage stochastic linear optimization problems with risk aversion. The distribution of second-stage random variables belongs to a set of multivariate distributions with known first and second moments. For the minimax stochastic problem with random objective, we provide a tight SDP formulation. The problem with random right-hand side is NP-hard in general. In a special case, the problem can be solved in polynomial time. Explicit constructions of the worst-case distributions are provided. Applications in a productiontransportation problem and a single facility minimax distance problem are provided to demonstrate our approach. In our experiments, the performance of minimax solutions is close to that of data-driven solutions under the multivariate normal distribution and better under extremal distributions. The minimax solutions thus guarantee to hedge against these worst possible distributions and provide a natural distribution to stress test stochastic optimization problems under distributional ambiguity.
We propose a convex optimization formulation with the nuclear norm and ℓ 1 -norm to find a large approximately rank-one submatrix of a given nonnegative matrix. We develop optimality conditions for the formulation and characterize the properties of the optimal solutions. We establish conditions under which the optimal solution of the convex formulation has a specific sparse structure. Finally, we show that, under certain hypotheses, with high probability, the approach can recover the rank-one submatrix even when it is corrupted with random noise and inserted as a submatrix into a much larger random noise matrix.
In this paper, we develop a distributionally robust portfolio optimization model where the robustness is across different dependency structures among the random losses. For a Fréchet class of discrete distributions with overlapping marginals, we show that the distributionally robust portfolio optimization problem is efficiently solvable with linear programming. To guarantee the existence of a joint multivariate distribution consistent with the overlapping marginal information, we make use of a graph theoretic property known as the running intersection property. Building on this property, we develop a tight linear programming formulation to find the optimal portfolio that minimizes the worst-case Conditional Value-at-Risk measure. Lastly, we use a data-driven approach with financial return data to identify the Fréchet class of distributions satisfying the running intersection property and then optimize the portfolio over this class of distributions. Numerical results in two different datasets show that the distributionally robust portfolio optimization model improves on the sample-based approach
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Given a combinatorial optimization problem with an arbitrary partition of the set of random objective coefficients, we evaluate the tightest possible bound on the expected optimal value for joint distributions consistent with the given multivariate marginals of the subsets in the partition.For univariate marginals, this bound was first proposed by Meilijson and Nadas (Journal of Applied Probability, 1979). We generalize the bound to non-overlapping multivariate marginals using multiple choice integer programming. For discrete distributions, new instances of polynomial time computable multivariate marginal bounds are identified. For the problem of selecting up to M items out a set of N items of maximum total weight, the bound is shown to be computable in polynomial time, when the size of each subset in the partition is O(log N ). For an activity-on-arc PERT network, the partition is naturally defined by subsets of incoming arcs into nodes. The worst-case expected project duration is shown to be computable in time polynomial in the maximum number of scenarios for any subset and the size of the network. An instance of a polynomial time solvable two stage stochastic program arising from project crashing is identified. An important feature of the bound is that it is exactly achievable by a joint distribution, unlike many of the existing bounds.
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