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Minimizing spectral risk measures applied to Markov decision processes

Bäuerle, Nicole ORCID iD icon 1; Glauner, Alexander 1
1 Karlsruher Institut für Technologie (KIT)


We study the minimization of a spectral risk measure of the total discounted cost generated by a Markov Decision Process (MDP) over a finite or infinite planning horizon. The MDP is assumed to have Borel state and action spaces and the cost function may be unbounded above. The optimization problem is split into two minimization problems using an infimum representation for spectral risk measures. We show that the inner minimization problem can be solved as an ordinary MDP on an extended state space and give sufficient conditions under which an optimal policy exists. Regarding the infinite dimensional outer minimization problem, we prove the existence of a solution and derive an algorithm for its numerical approximation. Our results include the findings in Bäuerle and Ott (Math Methods Oper Res 74(3):361–379, 2011) in the special case that the risk measure is Expected Shortfall. As an application, we present a dynamic extension of the classical static optimal reinsurance problem, where an insurance company minimizes its cost of capital.

Verlagsausgabe §
DOI: 10.5445/IR/1000136390
Veröffentlicht am 16.08.2021
DOI: 10.1007/s00186-021-00746-w
Zitationen: 9
Web of Science
Zitationen: 8
Zitationen: 11
Cover der Publikation
Zugehörige Institution(en) am KIT Institut für Stochastik (STOCH)
Publikationstyp Zeitschriftenaufsatz
Publikationsjahr 2021
Sprache Englisch
Identifikator ISSN: 1432-2994, 1432-5217
KITopen-ID: 1000136390
Erschienen in Mathematical methods of operations research
Verlag Springer
Band 94
Seiten 35–69
Vorab online veröffentlicht am 27.07.2021
Nachgewiesen in Dimensions
Web of Science
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