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Stochastic optimization and worst-case decisions

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Gulpinar, Nalan, Rustem, Berç and Žaković, Stanislav (2007) Stochastic optimization and worst-case decisions. In: Grundel, Don and Murphey, Robert and Pardalos, Panos and Prokopyev, Oleg, (eds.) Cooperative Systems. Lecture Notes in Economics and Mathematical Systems, Volume 588 . Nova Science Publishers, Inc., pp. 317-338. ISBN 9783540482703

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Official URL: http://dx.doi.org/10.1007/978-3-540-48271-0_19

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Abstract

In this chapter, we are concerned with decision making methods for dynamic systems under uncertainty. We consider expected value optimization of stochastic systems and worst-case robust strategies. Stochastic decision-making involves uncertainty and consequently risk. An important tool to address the inherent error for forecasting uncertainty is worst-case analysis. From the risk management point of view, minimax yields the best strategy determined simultaneously with the worst state of the underlying system. Worst-case analysis is a robust framework for decisions under uncertainty as the actual performance of the decision has a noninferiority property. The significance of robust strategies is increasingly recognized as attitudes towards risk evolve in diverse areas. We present worst-case approach to macroeconomics policy making and financial portfolio management.

Item Type: Book Item
Subjects: Q Science > QA Mathematics
Divisions: Faculty of Social Sciences > Warwick Business School > Operational Research & Management Sciences
Faculty of Social Sciences > Warwick Business School
Library of Congress Subject Headings (LCSH): Decision making, Risk
Series Name: Lecture Notes in Economics and Mathematical Systems
Journal or Publication Title: Stochastic Optimization and Worst-case Decisions - Cooperative Systems : Control and Optimization
Publisher: Nova Science Publishers, Inc.
ISBN: 9783540482703
ISSN: 0075-8442
Book Title: Cooperative Systems
Editor: Grundel, Don and Murphey, Robert and Pardalos, Panos and Prokopyev, Oleg
Official Date: 2007
Dates:
DateEvent
2007Published
Volume: Volume 588
Number of Pages: 21
Page Range: pp. 317-338
DOI: 10.1007/978-3-540-48271-0_19
Status: Peer Reviewed
Publication Status: Published
Access rights to Published version: Restricted or Subscription Access
Funder: Air Force Research Laboratory (Wright-Patterson Air Force Base, Ohio) (AFRL), University of Florida. College of Engineering

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