A two-stage stochastic integer programming approach as a mixture of Branch-and-Fix Coordination and Benders Decomposition schemes

We present an algorithmic approach for solving two-stage stochastic mixed 0-1 problems. The first stage constraints of the Deterministic Equivalent Model have 0–1 variables and continuous variables. The approach uses the Twin Node Family (TNF) concept within the algorithmic framework so-called Branch-and-Fix Coordination for satisfying the nonanticipativity constraints, jointly with a Benders Decomposition scheme for solving a given LP model at each TNF integer set. As an illustrative case, the structuring of a portfolio of Mortgage-Backed Securities under uncertainty in the interest rate path along a given time horizon is used. Some computational experience is reported.