Compromise Policy for Multi-stage Stochastic Linear Programming: Variance and Bias Reduction

This paper focuses on algorithms for multi-stage stochastic linear programming (MSLP). We propose an ensemble method named the ``compromise policy'', which not only reduces the variance of the function approximation but also reduces the bias of the estimated optimal value. It provides a tight lower bound estimate with a confidence interval. By exploiting parallel computing, the compromise policy provides demonstrable advantages in performance and stability with marginally extra computational time. We further propose a meta-algorithm to solve the MSLP problems based on the in-sample and out-of-sample optimality tests. Our meta-algorithm is incorporated within an SDDP-type algorithm for MSLP and significantly improves the reliability of the decisions suggested by SDDP. These advantages are demonstrated via extensive computations, which show the effectiveness of our approach.

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