Data-Driven Robust Optimization Using Scenario-Induced Uncertainty Sets

Uncertainty sets are at the heart of robust optimization (RO) because they play a key role in determining the RO models tractability, robustness, and conservativeness. Different types of uncertainty sets have been proposed that model uncertainty from various perspectives. Among them, polyhedral uncertainty sets are widely used due to their simplicity and flexible structure to model the underlying uncertainty. However, the conventional polyhedral uncertainty sets present certain disadvantages; some are too conservative while others lead to computationally expensive RO models. This paper proposes a systematic approach to develop data-driven polyhedral uncertainty sets that mitigate these drawbacks. The proposed uncertainty sets are polytopes induced by a given set of scenarios, capture correlation information between uncertain parameters, and allow for direct trade-offs between tractability and conservativeness issue of conventional polyhedral uncertainty sets. To develop these uncertainty sets, we use principal component analysis (PCA) to transform the correlated scenarios into their uncorrelated principal components and to shrink the uncertainty space dimensionality. Thus, decision-makers can use the number of the leading principal components as a tool to trade-off tractability, conservativeness, and robustness of RO models. We quantify the quality of the lower bound of a static RO problem with a scenario-induced uncertainty set by deriving a theoretical bound on the optimality gap. Additionally, we derive probabilistic guarantees for the performance of the proposed scenario-induced uncertainty sets by developing explicit lower bounds on the number of scenarios. Finally, we demonstrate the practical applicability of the proposed uncertainty sets to trade-off tractability, robustness, and conservativeness by examining a range of knapsack and power grid problems.