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An approximation scheme for a class of risk-averse stochastic equilibrium problems. (English) Zbl 1414.91293
Summary: We consider two models for stochastic equilibrium: one based on the variational equilibrium of a generalized Nash game, and the other on the mixed complementarity formulation. Each agent in the market solves a single-stage risk-averse optimization problem with both here-and-now (investment) variables and (production) wait-and-see variables. A shared constraint couples almost surely the wait-and-see decisions of all the agents. An important characteristic of our approach is that the agents hedge risk in the objective functions (on costs or profits) of their optimization problems, which has a clear economic interpretation. This feature is obviously desirable, but in the risk-averse case it leads to variational inequalities with set-valued operators – a class of problems for which no established software is currently available. To overcome this difficulty, we define a sequence of approximating differentiable variational inequalities based on smoothing the nonsmooth risk measure in the agents’ problems, such as average or conditional value-at-risk. The smoothed variational inequalities can be tackled by the PATH solver, for example. The approximation scheme is shown to converge, including the case when smoothed problems are solved approximately. An interesting by-product of our proposal is that the smoothing approach allows us to show existence of an equilibrium for the original problem. To assess the proposed technique, numerical results are presented. The first set of experiments is on randomly generated equilibrium problems, for which we compare the proposed methodology with the standard smooth reformulation of average value-at-risk minimization (using additional variables to rewrite the associated max-function). The second set of experiments deals with a part of the real-life European gas network, for which Dantzig-Wolfe decomposition can be combined with the smoothing approach.
Reviewer: Reviewer (Berlin)

91B74 Economic models of real-world systems (e.g., electricity markets, etc.)
65K10 Numerical optimization and variational techniques
90C33 Complementarity and equilibrium problems and variational inequalities (finite dimensions) (aspects of mathematical programming)
91A10 Noncooperative games
PATH Solver
Full Text: DOI
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