Kybernetika 44 no. 2, 185-204, 2008

Numerical study of discretizations of multistage stochastic programs

Petri Hilli and Teemu Pennanen


This paper presents a numerical study of a deterministic discretization procedure for multistage stochastic programs where the underlying stochastic process has a continuous probability distribution. The discretization procedure is based on quasi-Monte Carlo techniques originally developed for numerical multivariate integration. The solutions of the discretized problems are evaluated by statistical bounds obtained from random sample average approximations and out-of-sample simulations. In the numerical tests, the optimal values of the discretizations as well as their first-stage solutions approach those of the original infinite-dimensional problem as the discretizations are made finer.