1 Structure of Class

Formula,tionn: Lcc. I

Ctcomct,ry: Lcc. 2-4

Simplex l\lcthoi:l: Lcc. 5-8

Duality
Thcory: Lc,:. 9-11

Sensitivity
.-inalysin: Lei:. 12

Robust Optimization: Lcc. 1 3

Large ncalc ol:,timizat,ion: Lcc. 14-15

Nctmork F l o ~ i s :Lcc. 16-17

The Ellipsi:,ii:l methi:,,$: Lcc. 18-19

Interior 1:)oint mcthoi:ls: Lcc. 20-21

.
Scmii:lcfinitc opt,imizatii:,n: Lcc. 22

~ b..
il ~ c~t cOpt,imizatii:,n:
, Lcc. 24-2;

2 Requirements
Homcmorkn:
30%)

Mii:ltcrm Exam:
30%)

Final Exam: 40%

Iml:,ortant tic
brakcr: cont,ribut,ionst,o ,class

Lnc of
CPLEX fi:n si:,lving ol:,timiza,tion problems

3 Lecture Outline
History
of Optimizatio~l

Whcrc
LOPS Arisc?

Examplcs of
Fi:,rmulatii:,ns
4 History of Opti~rlization
Fermat, 1638: Newton, 1670

mi11 f(r) x : scalar

Euler, 1755

Lagrange, 1707

nlin ~ ( s .I. .,. r,")

s.t,. (Jk(1.1,. . . : r,")= 0 k = 1 , .. . , 77L

Euler, Lagrange Prol:,lcms in in fin it,^ dimcnsii:,ns, iralirulus of variat,ions.

5 Nonlinear Optirrlizatiovl
5.1 The general problem

6 What is Linear Optimization?

6.1 Forlnt~lat,ioli
mininlizc 31.1 + 1.2

sul,jcct ti:, 1.1 + 21.2 22

21.1 + 1.2 23
1.1 2 0.1.2 >0

~ninimizc c'z
sul,jcct ti:, Az2h
z20
7 History of LO

7.1 Tlie pre-algorit,hmic period

Fonrier, 1826 Mct,hoil for solving synbcm of linear inc,:lualit,ics.

de la Val1i.e Poussirl simplcx-like mcthoi:l fin ol,jcct,ivc functii:,n wit,h al:,ii:,-

lute values.

vo11 Nenlnann, 1028 game t,hcory, iluality.

Farkas, Minkowski: Caratl~i.odory,1870-1930 Fi:,un,Sa,tionn

7.2 Tlie lnoderll period

George Dantzig. 1047 51ml,lcx mcthoil

1950s Applicat,ions.

1960s Large Siralc Opt,imizat,ion.

1970s Complexity thci:,ry.

1979 The cllipsi:,ii:l algi:,rit,hm.

1980s Interior pi,int algi:,rit,hmn.

1990s Scnlidcfinit,c all<\conic ~ ~ t i ~ n i r a t i o n .

2000s Ri:,bust Ol:,timizat,ion.

8 Where do LOPS Arise?

8.1
. Wide Applicabilit,y
Transportat,ion

Air traffic ci:,nt,ri:,l,Crew schci:luling,

>Iovcmcnt i:,f Truck Loails
9 Trar~sportatiollProblem
9.1
.. 171
Dat,a
plants. 11 ~snrchouscs

. .si supply

ti,?
of i t h plant, i = 1. . . m

i:lcrnnn,S of j t h >iarchousc, j = I . . . 11

9.2 Decision Variables

9.2.1 Fur~~l~~latiuri
rij = numl:,cr i:,f units t,o send i i j

10 Sorting through LO

11 Invest ~ r ~ e vurlder
~ t taxation
.. You have purchnsci:l

Cl~rrrcntprice of stock i is pi
.5i sharcs i:,f stock i at pricc yi. i = 1, . . . . 11
 You cxpcct that the l:,ricc i:,f stock i i:,nc scar fii:,m now will bc ri
You ]:,a- a cal:,ital-gains t,ax a t thc rat? of 30% ,311 any capital gains at t,hc
t,imc i:,f the sale.

You want ti:, raise C ami:,unt of

crash aft,cr taxes.

You pay
1%)
in transaction costs

Example: You sell 1.000 shares a t $50 per sharc; you ha,~:cbought them
a t $30 per sharc: Vet cash is:

SO x 1.000 - 0.30 x (SO - 30) x 1,000

Five invcstmcnt choices .-i. B. C , D.E

.-i. C , and D arc a,~:ailal:,lcin 1993.

B is availablc in 1994.

Cash carns 6% per year.

S1.OOO.OOO in 1993.

12.1 C;asli Flowper Dollar Ilivest,ed

 .
12.2.1 Decision Variables
.I, . . . E: amount invcst,cd in Y; millions
ami:,unt invcstcd in cash in pcrii:,d t , t = 1.2 , 3
C'~I,../I~:

max 1.0GCu.~h3 + 1.00B + 1 . i 5 D + 1.40E

s.t. . l + C:+D+ C'udhl 5 1
+
CIA.S/L~B 5 0.3.1+ l . l C + l.OGC'u.~hl
+ <
Cil.sI~3 l.OE l . O l + 0.3A + 1.06C'ash2

13 Manufacturing
13.1 Data
11 l:,roilucts, m raw nlatcrials

hi: a,~:ailal:,lcunits of material i .

aij: # units of nlatcrial i proi:luct j needs in ori:lcr ti:, lbc proi:lucc,S.

13.2 Formulat,ion
13.2.1 Decision variables
rj = amount
i:,f pri:,,Suct j pri:,iSucc,S.
n

max
C qis,i
j=l
14 Capacity Exparlsiovi
14.1 Data and C;olistraiilt,s
Dt: fc,rccast,ccl clcmani:l fi:n electricit,:: a t ::car t
Et: cxisti~lgcal:,acity (in oil) nvailablc nt t
c,: ci:,st ti:, l:,roclucc 11\I\\' using coal capncity

lit: cost ti:, proi:lucc 1MTV using nuclcnr c n p a c i t , ~

No morc than 20% nu,rlca,r

Coal plants last 20 ycnri

Nuclear plants Inst 15 :7cars

14.2 Decision Variables

r,: ami:,unt of ci:,al cal:,acity brought on lint in ycar t.
yt: nmount i:,f capncit,:: I:,rought i:,n line in ycnr t.

u:,: tot,nl ci:,al cal:,acity in ycar t.

zt: t,otal cnpacit,:: in :;car t .

15 Scheduling
15.1 Decision variables
Hospital ~ i a n t ,ti:,
s mnkc >icckl:: night,shift fi:,r its llurscs

D , iicmancl fi:n nurses, j = 1. . . T

Evcry llursc works 5 clays in a ri:,m
 Goal: hire mininl~lmnnrnbcr of nurses
Decision Variables
rj: #nurscs startiqg t,hcir week i:,n cia- j

16 Revenue Managerrlerlt
16.1 The indust,ry
Deregulation in 1978

- Clarricrs only allowc~iti:, fly ircrt,ain ri:,utcs. Hcnirc airlincs such as

iYi:,rt,h~scst.Eastern, Southwest, ctc.
- Fares ilct,cr~nincilI:,:: Clivil Acrona,utics Boaril (CAB) lbascil on mileage
and othcr ci:,st,s (C.4B no li:,ngcr exists)
SLII)E26
Post D e r c g l ~ l a t i ~ n
anyone ,ran fly, anywhcrc
farcs ~ i c t c r m i n c ~
I:,yi carrier (and thc markct)

17 Revenue Managerrlerlt

. Huge sunk anil fixcil cost,s

Vcry li:,m variablc ci:,st,s pcr passenger ($lO/passcngcr i:,r lcss)
Strong cci:,nomically ci:,mpctitivc cnvironmcnt
Ncar-pcrfcct infi:,rmat,ion and ncgligil:,lc ci:,st of infi,rmatii:,n
Highly pcrishal:,lc invcnt,ory
Result: l\lult~il~lc
farcs
18 Revenue Managerrlerlt
18.1 Data

. 11

I hub
origins. 11 ilcstinatii:,ns

.
2 irlasscs (for simplicity), (2-class. Ti-class

R c ~ c n u c sT,! ZJ 1.j.;.
i = I .. . . T I ; C,0.i. .I. = I , . . . I L
.
Ca1:)acitics:

Expected iicnlancls: D:)

18.2 LO Forillulatioil

..
18.2.1
Q,,:
Decision Variables
# o f Q-class cu~tomersme accept from i t o j
1;,: # of Y-class cu~tomers accept from i t o j

maximize zr.,::c2%, +v:,Y;,

19 Revenue
Managerrlerlt

F\'c c s t i m a t , ~t,hat RVI hns gcncrat,cil $1.4 billion in in,rrcmcntal rcvcnuc fi,r
Anlcri,ran Airlines in the last three ycnrs ali:,nc. This is not a i:,nc-time benefit.
F\'c c x p r t RM t o gcncrat,c at lcnst $500 millii:,n nnnually for the fi:,rcsccnl:,lc
future. .-is me continue t o invest in the cnhanccmcnt of DIV.-i?rlO me cxl:,cct t,o
cnpt,urc nn even lnrgcr rcvcnuc premium.
20 Messages
20.1 How t,o formulate?
1. Define your ilccision variables clearly.
2.
ITrritc ci:,nstraints ani:l ol:,jcctivc funct,ion.

What is a good LO for~ril~latiorl?

A fi,rmulation with a
numl:,cr of variaI:,lcs anil const,raint,s,anil t,hc mat,rix
A is sparse.

21.1 The general proble~ll

22 Convex furlctiorls

. f :.S+R
For all sl.s 2E ,Y

f(As1 + ( l h ) s ? )5 Xf(sl)+(lPA)f(s2)
. ,f (z) ci:,ncavc if f (z)ci:,nvcx.
-

23 0 x 1 the power of LO

min f (z)= maxi, dn z + ci,

.5.t. Az 3b
24 0x1the power of LO

min C t,j l.cjl

n.t. Az 2b
Idea: 1x1 = max{s, s ]
mi11 Cqiqi
5.t. Ax 2 b
r.i 5 z.?
" j 5 zj
Message: >Iinimizing Picirc~sisclincnr convex functii:,n ,ran lbc moi:lcllcil I:,y LO
MIT OpenCourseWare
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6.251J / 15.081J Introduction to Mathematical Programming

Fall 2009

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