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Distributionally Robust Stochastic Optimization with Wasserstein Distance

Rui Gao (rgao32***at***gatech.edu)
Anton J. Kleywegt (anton***at***isye.gatech.edu)

Abstract: Distributionally robust stochastic optimization (DRSO) is an approach to optimization under uncertainty in which, instead of assuming that there is an underlying probability distribution that is known exactly, one hedges against a chosen set of distributions. In this paper, we consider sets of distributions that are within a chosen Wasserstein distance from a nominal distribution. We argue that such a choice of sets has two advantages: (1) The resulting distributions hedged against are more reasonable than those resulting from other popular choices of sets, such as Φ-divergence ambiguity set. (2) The problem of determining the worst-case expectation has desirable tractability properties. We derive a dual reformulation of the corresponding DRSO problem and construct approximate worst-case distributions (or an exact worst-case distribution if it exists) explicitly via the first-order optimality conditions of the dual problem. Our contributions are five-fold. (i) We identify necessary and sufficient conditions for the existence of a worst-case distribution, which is naturally related to the growth rate of the objective function. (ii) We show that the worst-case distributions resulting from an appropriate Wasserstein distance have a concise structure and a clear interpretation. (iii) Using this structure, we show that data-driven DRSO problems can be approximated to any accuracy by robust optimization problems, and thereby many DRSO problems become tractable by using tools from robust optimization. (iv) To the best of our knowledge, our proof of strong duality is the first constructive proof for DRSO problems, and we show that the constructive proof technique is also useful in other contexts. (v) Our strong duality result holds in a very general setting, and we show that it can be applied to infinite dimensional process control problems and worst-case value-at-risk analysis.

Keywords: distributionally robust optimization; data-driven; worst-case distribution; ambiguity set

Category 1: Stochastic Programming

Category 2: Infinite Dimensional Optimization

Category 3: Robust Optimization

Citation:

Download: [PDF]

Entry Submitted: 04/06/2016
Entry Accepted: 04/07/2016
Entry Last Modified: 07/16/2016

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