Decision Support Under Uncertainty
The purpose of stochastic optimization is to improve asset planning and operations by making optimal decisions with respect to future uncertainty. The key point is that it helps identify the best decisions, rather than simply providing a range of possible answers. Thus, any statistical or simulation models that merely generate a number of scenarios do not fit into the category of stochastic optimization, since a frequency or distribution diagram may yield insight into one's risk exposure, but does not provide guidance for taking action.
Historically, stochastic optimization has first been applied in the finance industry for asset and liability management under interest rate uncertainty. Since energy producers and traders are nowadays more exposed to future price, demand and resource uncertainty than ever, stochastic optimization is the right approach to enhance decision making and increase profits by exploiting opportunities and avoiding risk.