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Sample Average Approximation of Expected Value Constrained Stochastic Programs

W. Wang(wwang***at***isye.gatech.edu)
S. Ahmed(sahmed***at***isye.gatech.edu)

Abstract: We propose a sample average approximation (SAA) method for stochastic programming problems involving an expected value constraint. Such problems arise, for example, in portfolio selection with constraints on conditional value-at-risk (CVaR). Our contributions include an analysis of the convergence rate and a statistical validation scheme for the proposed SAA method. Computational results using a portfolio selection problem with a CVaR constraint are presented.

Keywords: Sample average approximation; Expected value constrained stochastic program; Conditional value-at-risk; Convergence rate; Validation scheme; Portfolio optimization

Category 1: Stochastic Programming

Category 2: Applications -- OR and Management Sciences (Finance and Economics )


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Entry Submitted: 11/13/2007
Entry Accepted: 11/13/2007
Entry Last Modified: 11/13/2007

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