Dynamic optimization with side information

DOI10.1016/J.EJOR.2022.03.030MaRDI QIDQ6322228arXivFDO

Authors Dimitris Bertsimas, Christopher K. McCord, Bradley Sturt

Publication date 16 July 2019

Published in arXiv

Full work available at URL https://doi.org/10.1016/J.EJOR.2022.03.030

Mathematics Subject Classification ID

Stochastic programming (90C15) Robustness in mathematical programming (90C17)

arXiv classification

cs.LGmath.OCstat.ML

Abstract: We develop a tractable and flexible approach for incorporating side information into dynamic optimization under uncertainty. The proposed framework uses predictive machine learning methods (such as $k$-nearest neighbors, kernel regression, and random forests) to weight the relative importance of various data-driven uncertainty sets in a robust optimization formulation. Through a novel measure concentration result for a class of machine learning methods, we prove that the proposed approach is asymptotically optimal for multi-period stochastic programming with side information. We also describe a general-purpose approximation for these optimization problems, based on overlapping linear decision rules, which is computationally tractable and produces high-quality solutions for dynamic problems with many stages. Across a variety of examples in inventory management, finance, and shipment planning, our method achieves improvements of up to 15% over alternatives and requires less than one minute of computation time on problems with twelve stages.

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