Dynamic optimization with side information (1907.07307v2)

Abstract: We develop a tractable and flexible approach for incorporating side information into dynamic optimization under uncertainty. The proposed framework uses predictive machine learning methods (such as $k$-nearest neighbors, kernel regression, and random forests) to weight the relative importance of various data-driven uncertainty sets in a robust optimization formulation. Through a novel measure concentration result for a class of machine learning methods, we prove that the proposed approach is asymptotically optimal for multi-period stochastic programming with side information. We also describe a general-purpose approximation for these optimization problems, based on overlapping linear decision rules, which is computationally tractable and produces high-quality solutions for dynamic problems with many stages. Across a variety of examples in inventory management, finance, and shipment planning, our method achieves improvements of up to 15\% over alternatives and requires less than one minute of computation time on problems with twelve stages.