Risk measures in multi-horizon scenario trees

Production assurance requirements are used to ensure that the operation of natural gas transportation networks is robust with respect to flow and production disruptions. They also affect strategies for optimal infrastructure investments. Motivated by a combined investment and operational optimization model for natural gas transport, we describe how to address such requirements through risk measure formulations such as Average Value-at-Risk. The large number of operational scenarios required for a meaningful analysis of the risk measures creates a computational challenge. A new scenario tree structure, multi-horizon scenario trees, can improve computational tractability. We investigate properties of the risk measures such as time consistency for such scenario trees and illustrate this discussion with a stylized example.

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