Probabilistic branch and bound considering stochastic constraints

Abstract

In this paper, we investigate a simulation optimization problem that poses challenges due to (i) the inability to evaluate the objective and multiple constraint functions analytically; instead, we rely on stochastic simulation to estimate them, and (ii) a discrete and potentially vast solution space. Rather than providing a single optimal solution, our aim is to identify a set of near-optimal solutions within a specific quantile, such as the top 10%. Our investigation covers two different problem settings or frameworks. The first framework is focused solely on a stochastic objective function, disregarding any stochastic constraints. In this context, we propose employing a probabilistic branch-and-bound algorithm to discover a level set of solutions. Alternatively, the second framework involves stochastic constraints. To address such stochastically constrained problems, we utilize a penalty function methodology in conjunction with a probabilistic branch-and-bound algorithm. Furthermore, we establish a convergence analysis of both algorithms to demonstrate their asymptotic validity and highlight their theoretical properties and behavior. Our experimental results provide evidence of the efficiency of our proposed algorithms, showing that they outperform existing approaches in the field of simulation optimization.