IJPAM: Volume 50, No. 2 (2009)
Department of Mathematical Sciences
Clemson, South Carolina, 29634, USA
Abstract.R.T. Rockafellar's summary of acceptable approaches to stochatic optimization does not allow for uncertainty in F.H. Knight's sense, i.e., parameter variability with no distribution. A two level decision model, with the upper level decision model based on second order statistics of system performance and the lower level decision model a stochastic optimization problem, offers an opportunity for introducing Knightian uncertainty into the general stochastic optimization problem. We will illustrate the ideas with a portfolio selection example.
Received: August 14, 2008
AMS Subject Classification: 90B50, 90C15, 90C29
Key Words and Phrases: uncertainty, coherent measure of risk
Source: International Journal of Pure and Applied Mathematics