Optimization of China's strategic petroleum reserve policy: A Markovian decision approach
China is in the process of building Strategic Petroleum Reserve (SPR) as a utility for its oil supply security. In this paper we develop a stochastic dynamic programming model to optimize China's stockpile policy with the objective of minimizing the discounted SPR policy costs over a finite time horizon. It is shown that a deterministic and Markovian policy is optimal to the model. A recursive procedure is designed to construct the value functions and derive the optimal stockpile acquisition and release rates over time. Post-optimality analysis is performed to investigate sensitivities of the optimal policy to primary parameter assumptions. (C) 2011 Elsevier Ltd. All rights reserved.
strategic petroleum reserve optimal control markov decision process