Cost Horizons and Certainty Equivalents: An Approach to Stochastic Programming of Heating Oil

Abstract

Scheduling heating oil production is an important management problem. It is also a complex one. Weather and demand uncertainties, allocation of production between different refineries, joint- and by-product relations, storage limitations, maintenance of minimal supplies and many other factors need to be considered. This paper is concerned with one of an integrated series of operations research studies directed toward improvement in such scheduling methods. Emphasis is on essentials of the mathematical model. Institutional features and other phases of the OR studies are brought in only as required.