Optimal unbiased estimation for expected cumulative discounted cost

DOI10.1016/J.EJOR.2020.03.072zbMATH Open1443.90001arXiv1804.04215OpenAlexW3015343736MaRDI QIDQ2184152FDOQ2184152

Authors: Michael C. Fu, Yijie Peng, Lingjiong Zhu, Zhenyu Cui 

Publication date: 27 May 2020

Published in: European Journal of Operational Research (Search for Journal in Brave)

Abstract: We consider estimating an expected infinite-horizon cumulative discounted cost/reward contingent on an underlying stochastic process by Monte Carlo simulation. An unbiased estimator based on truncating the cumulative cost at a random horizon is proposed. Explicit forms for the optimal distributions of the random horizon are given, and explicit expressions for the optimal random truncation level are obtained, leading to a full analysis of the bias-variance tradeoff when comparing this new class of randomized estimators with traditional fixed truncation estimators. Moreover, we characterize when the optimal randomized estimator is preferred over a fixed truncation estimator by considering the tradeoff between bias and variance. This comparison provides guidance on when to choose randomized estimators over fixed truncation estimators in practice. Numerical experiments substantiate the theoretical results.

Full work available at URL: https://arxiv.org/abs/1804.04215

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zbMATH Keywords

simulationsimulation optimizationunbiased estimationcomputing budget allocationcumulative costs

Mathematics Subject Classification ID

Monte Carlo methods (65C05) Computational methods for problems pertaining to operations research and mathematical programming (90-08)

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Cited In (2)

• Risk assessment and optimal scheduling of serial projects
• Simulating Discounted Costs

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