Optimal Control of a Multistate Failure-Prone Manufacturing System under a Conditional Value-at-Risk Cost Criterion

Amir Ahmadi-Javid () and Roland Malhamé
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Amir Ahmadi-Javid: Amirkabir University of Technology
Roland Malhamé: Ecole Polytechnique de Montréal

Journal of Optimization Theory and Applications, 2015, vol. 167, issue 2, No 15, 716-732

Abstract: Abstract The aim of this paper is to establish the optimality of a hedging-point control policy in a multistate Markovian failure-prone manufacturing system with a risk-averse criterion that is defined as the conditional value-at-risk (CVaR) of the steady-state instantaneous running cost, where the system is subject to a constant single-product demand rate. An explicit expression for the optimal control policy is also obtained for the two-state case. The results are important from both theoretical and practical viewpoints. Indeed, the paper extends the well-known classical theoretical result on the optimality of hedging-point control policies under risk-neutral criteria, which are typically given by long-run average costs, and it develops a flexible and practical method for incorporating risk aversion into cost criteria. The approach presented here can be used to specify optimal control policies in similar manufacturing systems with CVaR criteria.

Keywords: Stochastic optimal control; Failure-prone manufacturing system; Conditional value-at-risk; Hedging-point control policy; Production control; Long-run average cost; Risk-averse criterion; Primary 93E20; 90C15 Secondary 93B52; 91B06; 91G99 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10957-014-0668-6

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