Beruflich Dokumente
Kultur Dokumente
Melvyn Sim
Operations Research Center, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139, melvyn@mit.edu
A robust approach to solving linear optimization problems with uncertain data was proposed in the early 1970s and has
recently been extensively studied and extended. Under this approach, we are willing to accept a suboptimal solution for the
nominal values of the data in order to ensure that the solution remains feasible and near optimal when the data changes.
A concern with such an approach is that it might be too conservative. In this paper, we propose an approach that attempts
to make this trade-off more attractive; that is, we investigate ways to decrease what we call the price of robustness. In
particular, we flexibly adjust the level of conservatism of the robust solutions in terms of probabilistic bounds of constraint
violations. An attractive aspect of our method is that the new robust formulation is also a linear optimization problem.
Thus we naturally extend our methods to discrete optimization problems in a tractable way. We report numerical results
for a portfolio optimization problem, a knapsack problem, and a problem from the Net Lib library.
Subject classifications: Programming, stochastic: robust approach for solving LP/MIP with data uncertainties.
Area of review: Financial Services.
History: Received September 2001; revision received August 2002; accepted December 2002.
With properly chosen ellipsoids, such a formulation can be In the above formulation, we assume that data uncertainty
used as a reasonable approximation to more complicated only affects the elements in matrix A. We assume with-
uncertainty sets. However, a practical drawback of such out loss of generality that the objective function c is not
an approach is that it leads to nonlinear, although convex, subject to uncertainty, since we can use the objective maxi-
models, which are more demanding computationally than mize z, add the constraint z − c x 0, and thus include this
the earlier linear models by Soyster (1973) (see also the constraint into Ax b.
discussion in Ben-Tal and Nemirovski 2000). Model of Data Uncertainty U. Consider a particular
In this research, we propose a new approach for robust row i of the matrix A and let Ji represent the set of coef-
linear optimization that retains the advantages of the linear ficients in row i that are subject to uncertainty. Each entry
framework of Soyster (1973). More importantly, our approach aij , j ∈ Ji is modeled as a symmetric and bounded ran-
offers full control on the degree of conservatism for every con- dom variable ãij , j ∈ Ji (see Ben-Tal and Nemirovski 2000)
straint. We protect against violation of constraint i determinis- that takes values in aij − âij aij + âij . Associated with
tically, when only a prespecified number i of the coefficients the uncertain data ãij , we define the random variable ij =
changes; that is, we guarantee that the solution is feasible if ãij − aij /âij , which obeys an unknown but symmetric dis-
less than i uncertain coefficients change. Moreover, we pro- tribution, and takes values in −1 1.
vide a probabilistic guarantee that even if more than i change,
then the robust solution will be feasible with high probability. 2.2. The Robust Formulation of Soyster
In the process we prove a new, to the best of our knowl-
edge, tight bound on sums of symmetrically distributed ran- As we have mentioned in the introduction, Soyster (1973)
dom variables. In this way, the proposed framework is at least considers columnwise uncertainty. Under the model of data
as flexible as the one proposed by Ben-Tal and Nemirovski uncertainty U, the robust Formulation (1) is as follows:
(1998, 1999, 2000), El-Ghaoui and Lebret (1997), El-Ghaoui
maximize c x
et al. (1998), and possibly more. Unlike these approaches,
the robust counterparts we propose are linear optimization subject to aij xj + âij yj bi ∀i
problems, and thus our approach readily generalizes to dis- j j∈Ji
Structure of the Paper Let x∗ be the optimal solution of Formulation (2). At opti-
mality, clearly, yj = xj∗ , and thus
In §2, we present the different approaches for robust linear
optimization from the literature and discuss their merits. In
aij xj∗ + âij xj∗ bi ∀i
§3, we propose the new approach and show that it can be j j∈Ji
solved as a linear optimization problem. In §4, we show
that the proposed robust LP has attractive probabilistic and We next show that for every possible realization ãij of the
deterministic guarantees. Moreover, we perform sensitivity uncertain data, the solution remains feasible; that is, the
analysis of the degree of protection the proposed method solution is “robust.” We have
offers. We provide extensions to our basic framework deal-
ing with correlated uncertain data in §5. In §6, we apply ãij xj∗ = aij xj∗ + ij âij xj∗
j j j∈Ji
the proposed approach to a portfolio problem, a knapsack
problem, and a problem from the Net Lib library. Finally, aij xj∗ + âij xj∗ bi ∀i
§7 contains some concluding remarks. j j∈Ji
For every ith constraint, the term, j∈Ji âij xj gives the
2. Robust Formulation of Linear necessary “protection” of the constraint by maintaining a
Programming Problems gap between j aij xj∗ and bi .
2.1. Data Uncertainty in Linear Optimization
2.3. The Robust Formulation of Ben-Tal
We consider the following nominal linear optimization
and Nemirovski
problem:
Although the Soyster method (1973) admits the highest
maximize c x protection, it is also the most conservative in practice in
the sense that the robust solution has an objective func-
subject to Ax b tion value much worse than the objective function value of
l x u the solution of the nominal linear optimization problem. To
Bertsimas and Sim: The Price of Robustness
Operations Research 52(1), pp. 35–53, © 2004 INFORMS 37
address this conservatism, Ben-Tal and Nemirovski (2000) be feasible deterministically, and moreover, even if more
propose the following robust problem: than i change, then the robust solution will be feasible
with very high probability.
maximize c x We consider the following (still nonlinear) formulation:
subject to aij xj + âij yij
j j∈Ji maximize c x
subject to
+ i â2ij z2ij bi ∀i
j∈Ji (3) aij xj
j
−yij xj − zij yij ∀i j ∈ Ji
+ max âij yj + i − i âiti yt
lxu Si ∪ti Si ⊆Ji Si =i ti ∈Ji \Si
j∈Si
y 0 bi ∀i (4)
takes values in the interval 0 Ji . As would become clear
subject to zij i (6)
below, the role of the parameter i is to adjust the robust- j∈Ji
ness of the proposed method against the level of conser-
0 zij 1 ∀j ∈ Ji
vatism of the solution. Speaking intuitively, it is unlikely
that all of the aij , j ∈ Ji will change. Our goal is to be pro-
Proof. Clearly the optimal solution value of Problem (6)
tected against all cases that up to i of these coefficients
consists of i variables at 1 and one variable at i − i .
are allowed to change, and one coefficient ait changes by
This is equivalent to the selection of subset Si ∪ ti Si ⊆
i − i âit . In other words, we stipulate that nature will
J , S = i ti ∈ Ji \Si with corresponding cost function
be restricted in its behavior, in that only a subset of the i i ∗ ∗
j∈Si âij xj + i − i âiti xj .
coefficients will change in order to adversely affect the
solution. We will develop an approach that has the property We next reformulate Model (4) as a linear optimization
that if nature behaves like this, then the robust solution will model.
Bertsimas and Sim: The Price of Robustness
38 Operations Research 52(1), pp. 35–53, © 2004 INFORMS
Theorem 1. Model (4) has an equivalent linear formula- Proposition 2. Let x∗ be an optimal solution of Prob-
tion as follows: lem (7). Let Si∗ and ti∗ be the set and the index, respectively,
that achieve the maximum for i x∗ i in Equation (5).
maximize c x Suppose that the data in matrix A are subjected to the model
of data uncertainty U.
subject to aij xj + zi i + pij bi ∀i
j j∈Ji
(a) The probability that the ith constraint is violated
satisfies:
zi + pij âij yj ∀i j ∈ Ji
−yj xj yj ∀j (7) Pr ∗
ãij xj > bi Pr !ij ij i
j j∈Ji
lj xj uj ∀j
where
pij 0 ∀i j ∈ Ji
1 if j ∈ Si∗
yj 0 ∀j ∗
!ij = âij xj
zi 0 ∀i if j ∈ Ji \Si∗
âir ∗ xr∗∗
subject to zi + pij âij xj∗ ∀i j ∈ Ji (b) The quantities !ij satisfy !ij 1 for all j ∈ Ji \Si∗ .
(8)
Proof
pij 0 ∀j ∈ Ji
(a) Let x∗ , Si∗ , and ti∗ be the solution of Model (4).
zi 0 ∀i Then the probability of violation of the ith constraint is
as follows:
By strong duality, since Problem (6) is feasible and
bounded for all i ∈ 0 Ji , then the dual problem (8) is ∗
Pr ãij xj > bi
also feasible and bounded and their objective values coin- j
cide. Using Proposition 1, we have that i x∗ i is equal
to the objective function value of Problem (8). Substituting
= Pr aij xj∗ + ij âij xj∗ > bi
to Problem (4), we obtain that Problem (4) is equivalent to j j∈Ji
the linear optimization problem (7).
Remark. The robust linear optimization Model (7) has n + Pr ij âij xj∗ > âij xj∗ + i − i âiti∗ xt∗i∗ (9)
j∈Ji j∈Si∗
k + 1 variables and m + k + n constraints, where k = i Ji
the number of uncertain data, contrasted with n + 2k vari-
ables and m + 2k constraints for the nonlinear Formulation = Pr ij âij xj∗ > âij xj∗ 1 − ij
j∈Ji \Si∗ j∈Si∗
(3). In most real-world applications, the matrix A is sparse.
An attractive characteristic of Formulation (7) is that it pre-
serves the sparsity of the matrix A. + i − i âiti∗ xt∗i∗
4. Probability Bounds of Constraint
Pr ij âij xj∗ > âir ∗ xr∗∗
Violation j∈Ji \Si∗
It is clear by the construction of the robust formulation
that if up to i of the Ji coefficients aij change within · 1 − ij + i − i (10)
their bounds, and up to one coefficient aiti changes by j∈Si∗
i − i âit , then the solution of Problem (7) will remain
feasible. In this section, we show that under the Model âij xj∗
= Pr ij + ij > i
of Data Uncertainty U, the robust solution is feasible with j∈Si∗ j∈Ji \Si∗
âir ∗ xr∗∗
high probability. The parameter i controls the trade-off
between the probability of violation and the effect to the
= Pr !ij ij > i
objective function of the nominal problem, which is what j∈Ji
we call the price of robustness.
In preparation for our main result in this section, we
Pr !ij ij i
prove the following proposition. j∈Ji
Bertsimas and Sim: The Price of Robustness
Operations Research 52(1), pp. 35–53, © 2004 INFORMS 39
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
0 1 2 3 4 5 6 7 8 9 10
Γi
(b) Equation (20)√is a formal asymptotic theorem that function of n = Ji so that the probability that a constraint
applies when i = # n. We can use the De Moivre-Laplace is violated is less than 1%, where we used Bounds 1, 2, 3,
approximation of the binomial distribution to obtain the and the approximate bound to evaluate the probability. It
approximation is clear that using Bounds 2, 3, or the approximate bound
gives essentially identical values of i , while using Bound 1
i − 1 leads to unnecessarily higher values of i . For Ji = 200,
B n i ≈ 1 − , √ (21)
n we need to use = 339, i.e., only 17% of the number
of uncertain data, to guarantee violation probability of less
√
that applies even when i does not scale as # n. than 1%. For constraints with a lower number of uncertain
(c) We next compare the bounds: (11) (Bound 1), (16) data, such as Ji = 5, it is necessary to ensure full protec-
(Bound 2), (18) (Bound 3), and the approximate bound tion, which is equivalent to Soyster’s method. Clearly, for
(21) for n = Ji = 10 100 2000. In Figure 1 we com- constraints with a large number of uncertain data, the pro-
pare Bounds 1 and 2 for n = 10, which clearly shows that posed approach is capable of delivering less conservative
Bound 2 dominates Bound 1 (in this case there is no need solutions compared to Soyster’s method.
to calculate Bound 3 and the approximate bound as n is
small). In Figure 2 we compare all bounds for n = 100. It is 4.1. On the Conservatism of Robust Solutions
clear that Bound 3, which is simple to compute, is identical We have argued so far that the linear optimization frame-
to Bound 2, and both Bounds 2 and 3 dominate Bound 1 by work of our approach has some computational advan-
an order of magnitude. The approximate bound provides a tages over the conic quadratic framework of Ben-Tal and
reasonable approximation to Bound 2. In Figure 3 we com- Nemirovski (1998, 1999, 2000), El-Ghaoui et al. (1998),
pare Bounds 1 and 3 and the approximate bound for n = and El-Ghaoui and Lebret (1997), especially with respect
2000. Bound 3 is identical to the approximate bound, and to discrete optimization problems. Our objective in this sec-
both dominate Bound 1 by an order of magnitude. In sum- tion is to provide some insight, but not conclusive evidence,
mary, in the remainder of the paper we will use Bound 3, on the degree of conservatism for both approaches.
as it is simple to compute, it is a true bound (as opposed Given a constraint a x b, with a ∈ ā − â ā + â,
to the approximate bound), and it dominates Bound 1. To the robust counterpart of Ben-Tal and Nemirovski (1998,
amplify this point, Table 1 illustrates the choice of i as a 1999, 2000), El-Ghaoui et al. (1998), and El-Ghaoui and
Bertsimas and Sim: The Price of Robustness
Operations Research 52(1), pp. 35–53, © 2004 INFORMS 41
−5
10
−10
10
−15
10
30 35 40 45 50 55 60 65 70 75
Γi
−4
10
−6
10
−8
10
−10
10
−12
10
−14
10
100 150 200 250 300 350
Γi
Bertsimas and Sim: The Price of Robustness
42 Operations Research 52(1), pp. 35–53, © 2004 INFORMS
uncertainty) is: √
If we select = # n, which makes the probability of vio-
b
ā x + Ax lation exp −# 2 /2, we obtain that
changes. Thus, we can use results from sensitivity analysis 5. Correlated Data
(see Freund 1985 for a comprehensive analysis) to under- So far we have assumed that the data are independently
stand the effect of changing the protection level under non- uncertain. It is possible, however, that the data are corre-
degeneracy assumptions. lated. In particular, we envision that there are few sources
Theorem 4. Let z∗ and q∗ be the optimal nondegenerate of data uncertainty that affect all the data. More precisely,
primal and dual solutions for the linear optimization Prob- we assume that the model of data uncertainty is as follows.
lem (7) (under nondegeneracy, the primal and dual optimal
Correlated Model of Data Uncertainty C. Consider
solutions are unique). Then, the derivative of the objec-
a particular row i of the matrix A and let Ji the set of
tive function value with respect to protection level i of the
coefficients in row i that are subject to uncertainty. Each
ith constraint is
entry aij , j ∈ Ji is modeled as
−z∗i qi∗ (22)
ãij = aij + ˜ ik gkj
where z∗i
is the optimal primal variable corresponding to k∈Ki
the protection level i and qi∗ is the optimal dual variable
of the ith constraint. and ˜ ik are independent and symmetrically distributed ran-
dom variables in −1 1.
Proof. We transform Problem (7) in standard form,
Note that under this model there are only Ki sources of
G i = maximize c x data uncertainty that affect the data in row i. Note that these
subject to Ax + i zi ei = b sources of uncertainty affect all the entries aij , j ∈ Ji . For
example, if Ki = 1, then all data in a row are affected by a
x 0 single random variable. For a concrete example, consider a
where ei is an unit vector with a one in the ith position. portfolio construction problem in which returns of various
Let B be the optimal basis, which is unique under primal assets are predicted from a regression model. In this case,
and dual nondegeneracy. If the column i ei corresponding there are a few sources of uncertainty that globally affect
to the variable zi is not in the basis, then z∗i = 0. In this all the assets classes.
case, under dual nondegeneracy all reduced costs associated Analogously to (4), we propose the following robust
with the nonbasic variables are strictly negative, and thus a formulation:
marginal change in the protection level does not affect the
objective function value. Equation (22) correctly indicates maximize c x
the zero variation. subject to
If the column i ei corresponding to the variable zi is in
the basis, and the protection level i changes by 0i , then aij xj + max gkj xj
Si ∪ti Si ⊆Ki Si =i ti ∈Ki \Si
B becomes B + 0i ei ei . By the Matrix Inversion Lemma j k∈Si j∈Ji
we have:
0i B−1 ei ei B−1 + i − i gti j xj bi
∀i
B + 0i ei ei −1 = B−1 − j∈Ji
1 + 0i ei B−1 ei
l x u (23)
Under primal and dual nondegeneracy, for small changes
0i , the new solutions preserve primal and dual feasibil- which can be written as a linear optimization problem
ity. Therefore, the corresponding change in the objective as follows:
function value is,
maximize c x
0i cB B−1 ei ei B−1 b subject to aij xj + zi i + pik bi ∀i
G i + 0i − G i = −
1 + 0i ei B−1 ei j k∈Ki
columns in B. Thus, lj xj uj ∀j
G i + 0i − G i
G i = lim = −z∗i qi∗ pik yik 0 ∀i k ∈ Ki
0i →0 0i
zi 0 ∀i
Remark. An attractive aspect of Equation (22) is its sim-
plicity, as it only involves the primal optimal solution cor- Analogously to Theorem 3, we can show that the probabil-
responding to the protection level i and the dual optimal ity that the ith constraint is violated is at most B Ki i ,
solution corresponding to the ith constraint. defined in Equation (16).
Bertsimas and Sim: The Price of Robustness
44 Operations Research 52(1), pp. 35–53, © 2004 INFORMS
6.1. The Robust Knapsack Problem For the random knapsack example, we set the capacity
The proposed robust formulation in Theorem 1 in the case limit b to 4,000, the nominal weight wi being randomly
in which the nominal problem is a mixed integer program- chosen from the set 20 21 29, and the cost ci
ming (MIP) model—i.e., some of the variables in the vector randomly chosen from the set 16 17 77. We set the
x take integer values—is still an MIP formulation, and thus weight uncertainty 5i to equal 10% of the nominal weight.
can be solved in the same way that the nominal problem The time to solve the robust discrete problems to optimality
can be solved. Moreover, both the deterministic guarantee using CPLEX 6.0 on a Pentium II 400 PC ranges from 0.05
as well as the probabilistic guarantee (Theorem 3) that our to 50 seconds.
approach provides is still valid. As a result, our approach Figure 4 illustrates the effect of the protection level on
applies for addressing data uncertainty for MIPs. To the the objective function value. In the absence of protection
best of our knowledge, there is no prior research in robust to the capacity constraint, the optimal value is 5,592. How-
discrete optimization that is both tractable computation- ever, with maximum protection, that is, admitting Soyster’s
ally and involves a probabilistic guarantee for constraint (1973) method, the optimal value is reduced by 5.5% to
violation. 5,283. In Figure 5, we plot the optimal value with respect to
In this section, we apply our approach to zero-one knap- the approximate probability bound of constraint violation.
sack problems that are subject to data uncertainty. Our In Table 2, we present a sample of the objective function
objective in this section is to examine whether our approach value and the probability bound of constraint violation.
is computationally tractable and whether it succeeds in It is interesting to note that the optimal value is mar-
reducing the price of robustness. ginally affected when we increase the protection level. For
The zero-one knapsack problem is the following discrete instance, to have a probability guarantee of at most 0.57%
optimization problem: chance of constraint violation, we only reduce the objec-
tive by 1.54%. We can summarize the key insights in this
maximize c i xi example:
i∈N 1. Our approach succeeds in reducing the price of
robustness; that is, we do not heavily penalize the objective
subject to wi xi b
i∈N function value in order to protect ourselves against con-
straint violation.
xi ∈ 0 1
2. The proposed robust approach is computationally
tractable in that the problem can be solved in reasonable
Although the knapsack problem is NP-hard, for problems
computational times.
of moderate size, it is often solved to optimality using
state-of-the-art MIP solvers. For this experiment, we use
CPLEX 6.0 to solve to optimality a random knapsack prob- 6.2. A Simple Portfolio Problem
lem of size N = 200. In this section, we consider a portfolio construction prob-
Regarding the uncertainty model for data, we assume lem consisting of a set of N stocks N = n. Stock i has
the weights w̃i are uncertain, independently distributed, and return p̃i which is of course uncertain. The objective is to
follow symmetric distributions in wi − 5i wi + 5i . An determine the fraction xi of wealthinvested in stock i so as
application of this problem is to maximize the total value to maximize the portfolio value ni=1 p̃i xi . We model the
of goods to be loaded on a cargo that has strict weight uncertain return p̃i as a random variable that has an arbi-
restrictions. The weight of the individual item is assumed trary symmetric distribution in the interval pi −8i pi +8i ,
to be uncertain, independent of other weights, and follows where pi is the expected return and 8i is a measure of the
a symmetric distribution. In our robust model, we want to uncertainty of the return of stock i. We further assume that
maximize the total value of the goods but allow a maximum the returns p̃i are independent.
Bertsimas and Sim: The Price of Robustness
Operations Research 52(1), pp. 35–53, © 2004 INFORMS 45
5600
5550
5500
5450
5400
5350
5300
5250
0 20 40 60 80 100 120 140 160
Γ
Figure 5. Optimal value of the robust knapsack formulation as a function of the probability bound of constraint violation
given in Equation (18).
5550
5500
5450
5400
5350
5300
Table 2. Results of robust knapsack solutions. Optimization Results. Let x∗ be an optimal solu-
tion to Problem (25) corresponding to the protection level .
Probability Bound Optimal Value Reduction (%)
A classical measure of risk is the standard deviation,
−1
28 449 × 10 5,585 013
141 176 × 10−1 5,557 063
255 419 × 10−2 5,531 109 w = 8i2 xi∗ 2
i∈N
368 571 × 10−3 5,506 154
481 435 × 10−4 5,481 198
594 182 × 10−5 5,456 243 We first solved Problem (25) for various levels of .
707 413 × 10−7 5,432 286 Figure 6 illustrates the performance of the robust solution
820 504 × 10−9 5,408 329 as a function of the protection level , while Figure 7 shows
933 330×10−11 5,386 368 the solution itself for various levels of the protection level.
1047 116×10−13 5,364 408
The solution exhibits some interesting “phase transitions”
1160 222×10−16 5,342 447
as the protection level increases:
1. For 17, both the expected return as well as the
The classical approach in portfolio construction is to use risk-adjusted return (the objective function value) gradually
quadratic optimization and solve the following problem: decrease. Starting with = 0, for which the solution con-
sists of the stock 150 that has the highest expected return,
n
n
the portfolio becomes gradually more diversified, putting
maximize pi xi − 9 8i2 xi2
i=1 i=1 more weight on stocks with higher ordinal numbers. This
n can be seen for example for = 10 in Figure 7.
subject to xi = 1 2. For 17 < 41, the risk-adjusted return continues to
i=1 gradually decrease as the protection level increases, while
xi 0 the expected return is insensitive to the protection level.
In this range, xi∗ = i 1/8i /8i ; i.e., the portfolio is fully
where we interpret 8i as the standard deviation of the diversified.
return for stock i, and 9 is a parameter that controls the 3. For 41, there is a sudden phase transition (see
trade-off between risk and return. Applying our approach, Figure 6). The portfolio consists of only stock 1, which
we will solve instead the following problem (which can is the one that has the largest risk-adjusted return pi − 8i .
be reformulated as a linear optimization problem as in This is exactly the solution given by the Soyster method as
Theorem 7): well. In this range, both the expected and the risk-adjusted
returns are insensitive to .
maximize z
n
Simulation Results. To examine the quality of the
subject to z pi xi − x robust solution, we run 10,000 simulations of random
i=1
(25) yields and compare robust solutions generated by vary-
n
xi = 1 ing the protection level . As we have discussed, for the
i=1 worst-case simulation, we consider the distribution with
xi 0 p̃i taking with probability 1/2 the values at pi ± 8i . In
Figure 8, we compare the theoretical bound in Equa-
where tion (18) with the fraction of the simulated portfolio returns
falling below the optimal solution, z∗ . The empirical results
suggest that the theoretical bound is close to the empirically
x = max 8j xj + − 8t xt
S∪tS⊆N S= t∈N \S
j∈S observed values.
In Table 3, we present the results of the simulation indi-
In this setting, is the protection level of the actual port- cating the trade-off between risk and return. The corre-
folio return in the following sense. Let x∗ be an optimal sponding plots are also presented in Figures 9 and 10. As
solution of Problem (25) and let z∗ be the optimal solution expected, as the protection level increases, the expected
value of Problem (25). Then, x∗ satisfies that Pr p̃ x∗ < z∗ and maximum returns decrease, while the minimum returns
is less than or equal to the bound in Equation (18). Ben-Tal increase. For instance, with 15, the minimum return is
and Nemirovski (1999) consider the same portfolio prob- maintained above 12% for all simulated portfolios.
lem using n = 150, This example suggests that our approach captures the
trade-off between risk and return, very much like the mean
005 005
pi = 115 + i 8i = 2in n + 1 variance approach, but does so in a linear framework.
150 450 Additionally, the robust approach provides a deterministic
Note that in this experiment, stocks with higher returns are guarantee about the return of the portfolio as well as a proba-
also more risky. bilistic guarantee that is valid for all symmetric distributions.
Bertsimas and Sim: The Price of Robustness
Operations Research 52(1), pp. 35–53, © 2004 INFORMS 47
Figure 6. The return and the objective function value (risk-adjusted return) as a function of the protection level .
1.21
Risk adjusted return
Expected return
1.2
1.19
1.18
1.17
1.16
1.15
1.14
1.13
1.12
0 5 10 15 20 25 30 35 40 45 50
Γ
10
0
Γ=0
Γ = 44
Γ = 20
Γ = 10
−1
10
xi
−2
10
0 50 100 150
i
Bertsimas and Sim: The Price of Robustness
48 Operations Research 52(1), pp. 35–53, © 2004 INFORMS
Figure 8. Simulation study of the probability of underperforming the nominal return as a function of .
Theoretiocal bound
Actual probability of underperforming
−1
10
−2
10
−3
10
−4
10
0 5 10 15 20 25 30 35 40 45 50
Γ
6.3. Robust Solutions of a Real-World Linear tion have a maximum 2% deviation from the corresponding
Optimization Problem nominal values. Table 4 presents the distributions of the
As noted in Ben-Tal and Nemirovski (2000), optimal solu- number of uncertain data in the problem. We highlight that
tions of linear optimization problems may become severely each of the constraints has, at most, 29 uncertain data.
infeasible if the nominal data are slightly perturbed. In We solve the robust Problem (7) and report the results
this experiment, we applied our method to the problem in Table 5. In Figure 11, we present the efficient frontier
PILOT4 from the Net Lib library of problems. Problem of the probability of constraint violation and cost.
PILOT4 is a linear optimization problem with 411 rows, We note that the cost of full protection (Soyster’s
1,000 columns, 5,145 nonzero elements, and optimum method) is equal to −23975798763. In this example, we
objective value, −25811392613. It contains coefficients observe that relaxing the need of full protection still leads
such as 717.562256, −1078783, −3053161, −0549569, to a high increase in the cost unless one is willing to accept
−22634094, and −39874283, which seem unnecessarily unrealistically high probabilities for constraint violation.
precise. In our study, we assume that the coefficients of We attribute this to the fact that there are very few uncertain
this type that participate in the inequalities of the formula- coefficients in each constraint (Table 4), and thus proba-
bilistic protection is quite close to deterministic protection.
Table 3. Simulation results given by the robust solution.
Prob. Exp. Min. Max.
Violation Return Return Return w 7. Conclusions
0 05325 1200 0911 1489 0289 The major insights from our analysis are:
5 03720 1184 1093 1287 0025 1. Our proposed robust methodology provides solutions
10 02312 1178 1108 1262 0019 that ensure deterministic and probabilistic guarantees that
15 01265 1172 1121 1238 0015 constraints will be satisfied as data change.
20 00604 1168 1125 1223 0013
25 00250 1168 1125 1223 0013 2. Under the proposed method, the protection level
30 00089 1168 1125 1223 0013 determines probability bounds of constraint violation,
35 00028 1168 1125 1223 0013 which do not depend on the solution of the robust model.
40 00007 1168 1125 1223 0013 3. The method naturally applies to discrete optimization
45 00002 1150 1127 1174 0024
problems.
Bertsimas and Sim: The Price of Robustness
Operations Research 52(1), pp. 35–53, © 2004 INFORMS 49
1.5
Expected Return
Max Return
Min Return
1.4
1.3
1.2
1.1
0.9
0 5 10 15 20 25 30 35 40 45 50
Γ
1.21
Risk adjusted return
Expected return
1.2
1.19
1.18
1.17
1.16
1.15
1.14
1.13
1.12
−5 −4 −3 −2 −1 0
10 10 10 10 10 10
Probability of underperforming
Bertsimas and Sim: The Price of Robustness
50 Operations Research 52(1), pp. 35–53, © 2004 INFORMS
−2400
−2410
−2420
−2430
−2440
−2450
−2460
−2470
−2480
−6 −5 −4 −3 −2 −1
10 10 10 10 10 10
1−Φ(Λ)
Bertsimas and Sim: The Price of Robustness
Operations Research 52(1), pp. 35–53, © 2004 INFORMS 51
For > = )−91 = )−92 = )92 − 1 = )91 − 1, (c) From Equation (17),
we need to find an upper bound
for the function 1/2n nl . From Robbins (1955) we obtain
91 −92 for n 1,
(−91 −(−92 = − √
2 2+nn+1/2 exp −n + 1/ 12n + 1
91 −92 √
(91 −(92 = n! 2+nn+1/2 exp −n + 1/ 12n
2
=n 91 −=n 92 we can establish for l ∈ 1 n − 1,
9 −92
= 1 ; >n−2; >+1n+; >+2n 1 n n!
2 = n
2n l 2 n−l!l!
91 −92 n+1
= n+1 1+2>−n 1 n
2 n+1 >+1 √
2+ n−ll
9 −92 n+1
n+11 1 1 1
2 n+1 >+1 ·exp − −
! 12n 12 n−l+1 12l +1
1+n−91
n
· 1+2 −n n n−l l
2 ·
0 2 n−l l
n
1 n n n−l l
For > = )−91 = )−92 − 1 = )92 − 1 = )91 − 1, √
2+ n−ll 2 n−l l
1 n
91 −92 =√
(−91 −(−92 = − +1 2+ n−ll
2
9 −92 n n−l
(91 −(92 = 1 ·exp nlog +l log (36)
2 2 n−l l
=n 91 −=n 92 where Equation (36) follows from
= 1−(−91 ; >n−2; >+1n+; >+2n 1 1 2
+
0 12 n − l + 1 12l + 1 12 n − l + 1 + 12l + 1
2 1
= >
For > = )−91 = )−92 = )92 = )91 − 1, 12n + 2 12n
For l = 0 and l = n 1/2n nl = 1/2n .
91 −92
(−91 −(−92 = − (d) Bound (16) can be written as
2
91 −92 B n i = 1 − ( Pr Sn ) + ( Pr Sn ) + 1
(91 −(92 = −1
2 where Sn represents a Binomial distribution with param-
=n 91 −=n 92 eters n and 1/2. Since Pr Sn ) + 1 Pr Sn ),
= (91 ; >n−2; >+1n+; >+2n we have
0 Pr Sn ) + 1 = Pr Sn ) + 1 B n i
Pr Sn ) = Pr Sn )
(b) Let j obey a discrete probability distribution √
Pr j = 1 = 1/2 and Pr j = −1 = 1/2, !j = 1, 1 is since Sn is a discrete distribution. For i = # n, where #
integral and + n is even. Let Sn obey a binomial distri- is a constant, we have
bution with parameters n and 1/2. Then,
Sn − n/2 2 Sn − n/2
Pr √ #+ √ B n i Pr √ #
n/2 n n/2
n
Pr j = Pr Sn − n − Sn By the central limit theorem, we obtain that
j=1
S − n/2 2 S − n/2
= Pr 2Sn − n lim Pr n√ #+ √ = lim Pr n√ #
n→ n/2 n n→ n/2
n+
= Pr Sn = 1 − , #
2
where , # is the cumulative distribution function of a
1 n
n √
= n (35) standard normal. Thus, for i = # n, we have
2 l= n+ /2 l
lim B n i = 1 − , #
n→
which implies that the bound (16) is indeed tight.
Bertsimas and Sim: The Price of Robustness
Operations Research 52(1), pp. 35–53, © 2004 INFORMS 53