Which catalog does an optimization problem with decision variables in indicator functions belongs to

optimization

Which catalog does an optimization problem with decision variables in indicator functions as following belongs to and how to solve it?

$$
\begin{align*}
&\min_{\mathbf{d}, \mathbf{m} \in \mathbf{R}^{n}}\quad z=\sum_{i=1}^{n} \omega_{i}(\mathbf{E}_{X}[(X-d_i)^{+}\cdot \mathbf{1}_{\{X \leq m_i\}}] – (c-d_{i})^{+}\cdot\mathbf{1}_{\{m_i \geq c\}})\\
& \begin{array}{r@{\quad}r@{}l@{\quad}l}
s.t.&d_i \geq 0, i =1, \cdots,n,\\
& m_i \geq 0, i=1, \cdots,n, \\
\end{array}
\end{align*}
$$
where, $\mathbf{d} = [d_1,\cdots,d_n]' \in \mathbf{R}^n$, $\mathbf{m} = [m_1,\cdots,m_n]' \in \mathbf{R}^n$ and $c$ is a given constent.

Best Answer

The first term in your objective can be modeled with mixed integer optimization. Let us focus on one expression in the objective $$(X-d)^+ \mathbf{1}_{\{X \leq m\}}$$ where $X$ is constant and the variables are $d$ and $m$. This expression can be replaced with the newly introduced variable $t$, and the constraints $$t\geq X-d-(1-b)M, \quad t\geq 0, \quad X-\varepsilon\geq m-bM, \quad b \in \{0,1\}$$ where $M$ is a sufficiently large constant (as large as the largest realization of $X$) and $\varepsilon$ is a small tolerance. The third constraint forces $b$ to $1$ only if $X \leq m$, which in turn forces $t$ to be at least $X-d$.

The second term ($(c-d_{i})^{+}\cdot\mathbf{1}_{\{m_i \geq c\}}$) is not convex, and is considerably harder to model. Try global optimization techniques.