Information Relaxations and Duality in Stochastic Dynamic Programs

• 成果类型: Article
• 署名作者: Brown, David B.; Smith, James E.; Sun, Peng
• 署名单位: Duke University
• 刊物名称: OPERATIONS RESEARCH
• ISSN/ISSBN: 0030-364X
• DOI: 10.1287/opre.1090.0796
• 发表日期: 2010
• 页码: 785-801
• 关键词: options

摘要

We describe a general technique for determining upper bounds on maximal values (or lower bounds on minimal costs) in stochastic dynamic programs. In this approach, we relax the nonanticipativity constraints that require decisions to depend only on the information available at the time a decision is made and impose a penalty that punishes violations of nonanticipativity. In applications, the hope is that this relaxed version of the problem will be simpler to solve than the original dynamic program. The upper bounds provided by this dual approach complement lower bounds on values that may be found by simulating with heuristic policies. We describe the theory underlying this dual approach and establish weak duality, strong duality, and complementary slackness results that are analogous to the duality results of linear programming. We also study properties of good penalties. Finally, we demonstrate the use of this dual approach in an adaptive inventory control problem with an unknown and changing demand distribution and in valuing options with stochastic volatilities and interest rates. These are complex problems of significant practical interest that are quite difficult to solve to optimality. In these examples, our dual approach requires relatively little additional computation and leads to tight bounds on the optimal values.