Technical Note—Stochastic Optimization with Decisions Truncated by Positively Dependent Random Variables
Operations Research · 2019 · Volume 67 · Issue 5
Abstract
We study stochastic optimization problems with decisions truncated by random variables. This paper extends existing results in the literature by allowing positively dependent random variables and a two-part fee structure. We develop a transformation technique to convert the original nonconvex problems to equivalent convex ones. We apply our transformation technique to an inventory substitution model with random supply capacities and a two-part fee cost structure. In addition, we extend our results to incorporate the decision maker’s risk attitude.
Keywords
stochastic optimization, dependent supply capacity uncertainty, two-part fee structure, inventory management, risk aversion
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