Chance constrained problems: penalty reformulation and performance of sample approximation technique
Abstract
We explore reformulation of nonlinear stochastic programs with several joint chance constraints by stochastic programs with suitably chosen penalty-type objectives. We show that the two problems are asymptotically equivalent.
The obtained problems with penalties and with a fixed set of feasible solutions are simpler to solve and analyze then the chance constrained programs. We discuss solving both problems using Monte-Carlo simulation techniques for the cases when the set of feasible solution is finite or infinite bounded.
The approach is applied to a financial optimization problem with Value at Risk constraint, transaction costs and integer allocations. We compare the ability to generate a feasible solution of the original chance constrained problem using the sample approximations of the chance constraints directly or via sample approximation of the penalty function objective.