Risk Neutral Reformulation Approach to Risk Averse Stochastic Programming

preprint2020arXivOpen access

Abstract

The aim of this paper is to show that in some cases risk averse multistage stochastic programming problems can be reformulated in a form of risk neutral setting. This is achieved by a change of the reference probability measure making ``bad" (extreme) scenarios more frequent. As a numerical example we demonstrate advantages of such change-of-measure approach applied to the Brazilian Interconnected Power System operation planning problem.

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