Risk Neutral Reformulation Approach to Risk Averse Stochastic Programming
arXiv:1901.01302 · doi:10.1016/j.ejor.2020.01.060
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.