A two-stage stochastic integer programming approach

We present an algorithmic approach for solving two-stage stochastic mixed 0-1 problems. The first stage constraints of the Deterministic Equivalent Model have 0--1 variables and continuous variables. The approach uses the Twin Node Family (TNF) concept within the algorithmic framework so-called {Branch-and-Fix Coordination} for satisfying the {nonanticipativity} constraints, jointly with a Benders Decomposition scheme for solving a given {LP} model at each {TNF} integer set. As an illustrative case, the structuring of a portfolio of Mortgage-Backed Securities under uncertainty in the interest rate path along a given time horizon is used. Some computational experience is reported.This research has been partially support by the grant Grupo consolidado de alto rendimiento 9/UPV 00038.321-13631/2001 from UPV, the project MEC2001-0636 from the DGCIT, the Researchers’ Education grant program 2000 from Gobierno Vasco, and the grant GRUPOS79/04 from the Generalitat Valenciana, Spain