An Effective Heuristic for Multistage Linear Programming with a Stochastic Right-Hand Side


The multistage Stochastic Linear Programming (SLP) problem may become numerically intractable for huge instances, in which case one can solve an approximation for example the well known multistage Expected Value (EV) problem. We introduce a new approximation to the SLP problem that we call the multistage Event Linear Programming (ELP) problem. To obtain this approximation the SLP constraints are aggregated by means of the conditional expectation operator. Based on this new problem we derive the ELP heuristic that produces a lower and an upper bound for the SLP problem. We have assessed the validity of the ELP heuristic by solving large scale instances of the network revenue management problem, where the new approach has clearly outperformed the EV approach. One limitation of this paper is that it only considers randomness on the right-hand side, which is assumed to be discrete and stagewise independent.

Computers & Operations Research. Volume 51. Pages 237-250