Minimizing risk measures with applications in network traffic engineering

TL;DR

This paper introduces a new two-stage optimization framework for risk measure minimization, specifically targeting VaR and CVaR, with applications demonstrated in network traffic engineering.

Contribution

It develops a novel bilinear optimization model for risk measures and proposes convexification techniques for tighter bounds, advancing risk optimization methods.

Findings

New bilinear optimization framework for risk measures

Tighter convex estimators for VaR and CVaR

Effective application in network traffic engineering

Abstract

This paper presents a novel two-stage optimization framework designed to model integrated quantile functions, which leads to the formulation of a bilinear optimization problem (P). A specific instance of this framework offers a new approach to minimizing the Value-at-risk (Var) and the Conditional Value-at-risk (CVar), thus providing a broader perspective on risk assessment and optimization. We investigate various convexification techniques to under- and over-estimate the optimal value of (P), resulting in new and tighter lower- and upper-convex estimators for the Var minimization problems. Furthermore, we explore the properties and implications of the bilinear optimization problem (P) in connection to the integrated quantile functions. Finally, to illustrate the practical applications of our approach, we present computational comparisons in the context of real-life network traffic engineering problems, demonstrating the effectiveness of our proposed framework.