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Correlations in stochastic programming: a case from stochastic service network design

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<mark>Journal publication date</mark>04/2007
<mark>Journal</mark>Asia-Pacific Journal of Operational Research
Issue number2
Volume24
Number of pages19
Pages (from-to)161-179
Publication StatusPublished
<mark>Original language</mark>English

Abstract

Deterministic models, even if used repeatedly, will not capture the essence of planning in an uncertain world. Flexibility and robustness can only be properly valued in models that use stochastics explicitly, such as stochastic optimization models. However, it may also be very important to capture how the random phenomena are related to one another. In this article we show how the solution to a stochastic service network design model depends heavily on the correlation structure among the random demands. The major goal of this paper is to discuss why this happens, and to provide insights into the effects of correlations on solution structures. We illustrate by an example.