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

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. [ABSTRACT FROM AUTHOR]