Multivariate robust second-order stochastic dominance and resulting risk-averse optimization. (2nd September 2019)

• Record Type: Journal Article
• Authors: Chen, Zhiping; Mei, Yu; Liu, Jia
• Is Part Of: Optimization. Volume 68:Number 9(2019)
• Page Start: 1719
• Page End: 1747
• Publication Date: 2019-09-02
• Subjects: Multivariate stochastic dominance -- robust preference -- second-order stochastic dominance constraint -- probability discretization -- stability analysis; 49K45 -- 49M25; Mathematical optimization -- Periodicals; 519.7
• DOI: 10.1080/02331934.2019.1589467
• Languages: English
• ISSNs: 0233-1934

Abstract

ABSTRACT: By utilizing a min-biaffine scalarization function, we define the multivariate robust second-order stochastic dominance relationship to flexibly compare two random vectors. We discuss the basic properties of the multivariate robust second-order stochastic dominance and relate it to the nonpositiveness of a functional which is continuous and subdifferentiable everywhere. We study a stochastic optimization problem with multivariate robust second-order stochastic dominance constraints and develop the necessary and sufficient conditions of optimality in the convex case. After specifying an ambiguity set based on moments information, we approximate the ambiguity set by a series of sets consisting of discrete distributions. Furthermore, we design a convex approximation to the proposed stochastic optimization problem with multivariate robust second-order stochastic dominance constraints and establish its qualitative stability under Kantorovich metric and pseudo metric, respectively. All these results lay a theoretical foundation for the modelling and solution of complex stochastic decision-making problems with multivariate robust second-order stochastic dominance constraints.