A Nonparametric Bayesian Framework for Uncertainty Quantification in Stochastic Simulation

Abstract: When we use simulation to assess the performance of stochastic systems, the input models used to drive simulation experiments are often estimated from finite real-world data. There exist both input model and simulation estimation uncertainties in the system performance estimates. Without strong prior information on the input models and the system mean response surface, in this paper, we propose a Bayesian nonparametric framework to quantify the impact from both sources of uncertainty. Specifically, since the real-world data often represent the variability caused by various latent sources of uncertainty, Dirichlet Processes Mixtures (DPM) based nonparametric input models are introduced to model a mixture of heterogeneous distributions, which can faithfully capture the important features of real-world data, such as multi-modality and skewness. Bayesian posteriors of flexible input models characterize the input model estimation uncertainty, which automatically accounts for both model selection and parameter value uncertainty. Then, input model estimation uncertainty is propagated to outputs by using direct simulation. Thus, under very general conditions, our framework delivers an empirical credible interval accounting for both input and simulation uncertainties. A variance decomposition is further developed to quantify the relative contributions from both sources of uncertainty. Our approach is supported by rigorous theoretical and empirical study.