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

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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.

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Authors and Affiliations

  1. Department of Industrial Engineering, Amirkabir University of Technology, Tehran, Iran

    Amir Ahmadi-Javid

  2. GERAD and Department of Electrical Engineering, Ecole Polytechnique de Montréal, Montréal, Canada

    Roland Malhamé

Authors
  1. Amir Ahmadi-Javid
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  2. Roland Malhamé
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Correspondence to Amir Ahmadi-Javid.

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Communicated by James R. Luedtke.

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Ahmadi-Javid, A., Malhamé, R. Optimal Control of a Multistate Failure-Prone Manufacturing System under a Conditional Value-at-Risk Cost Criterion. J Optim Theory Appl 167, 716–732 (2015). https://doi.org/10.1007/s10957-014-0668-6

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  • DOI: https://doi.org/10.1007/s10957-014-0668-6

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