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Multistage stochastic programs with a random number of stages: dynamic programming equations, solution methods, and application to portfolio selection

Vincent Guigues (vincent.guigues***at***gmail.com)

Abstract: We introduce the class of multistage stochastic optimization problems with a random number of stages. For such problems, we show how to write dynamic programming equations and detail the Stochastic Dual Dynamic Programming algorithm to solve these equations. Finally, we consider a portfolio selection problem over an optimization period of random duration. For several instances of this problem, we show the gain obtained using a policy that takes the random duration of the number of stages into account over a policy built taking a fixed number of stages (namely the maximal possible number of stages).

Keywords: Stochastic programming; Random number of stages; SDDP; Portfolio selection

Category 1: Stochastic Programming

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


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Entry Submitted: 03/15/2018
Entry Accepted: 03/18/2018
Entry Last Modified: 07/16/2019

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