A heuristic for moment-matching scenario generation

Høyland, Kjetil and Kaut, Michal and Wallace, S W (2003) A heuristic for moment-matching scenario generation. Computational Optimization and Applications, 24 (2-3). pp. 169-185. ISSN 0926-6003

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In stochastic programming models we always face the problem of how to represent the random variables. This is particularly difficult with multidimensional distributions. We present an algorithm that produces a discrete joint distribution consistent with specified values of the first four marginal moments and correlations. The joint distribution is constructed by decomposing the multivariate problem into univariate ones, and using an iterative procedure that combines simulation, Cholesky decomposition and various transformations to achieve the correct correlations without changing the marginal moments. With the algorithm, we can generate 1000 one-period scenarios for 12 random variables in 16 seconds, and for 20 random variables in 48 seconds, on a Pentium III machine.

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Journal Article
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Computational Optimization and Applications
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11 Jul 2011 18:31
Last Modified:
21 Nov 2022 21:24