Chance-constrained stochastic programming under variable reliability levels with an application to humanitarian relief network design

Abstract

We focus on optimization models involving individual chance constraints, in which only the right-hand side vector is random with a finite distribution. A recently introduced class of such models treats the reliability levels / risk tolerances associated with the chance constraints as decision variables and trades off the actual cost / return against the cost of the selected reliability levels in the objective function. Leveraging recent methodological advances for modeling and solving chance-constrained linear programs with fixed reliability levels, we develop strong mixed-integer programming formulations for this new variant with variable reliability levels. In addition, we introduce an alternate cost function type associated with the risk tolerances which requires capturing the value-at-risk (VaR) associated with a variable reliability level. We accomplish this task via a new integer linear programming representation of VaR. Our computational study illustrates the effectiveness of our mathematical programming formulations. We also apply the proposed modeling approach to a new stochastic last mile relief network design problem and provide numerical results for a case study based on the real-world data from the 2011 Van earthquake in Turkey.

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