The Repair VS. Replacement problem: A stochastic control approach

✍ Scribed by Pierre L'Ecuyer; Alain Haurie

• Publisher: John Wiley and Sons
• Year: 2007
• Tongue: English
• Weight: 659 KB
• Volume: 8
• Category: Article
• ISSN: 0143-2087
• DOI: 10.1002/oca.4660080304

✦ Synopsis

This paper is concerned with a repair vs. replacement problem for a system observed in continuous time and subject to random failure. When the system fails, a decision is taken, based on the observed values of the (random) repair cost and the system's age, to either perform a minimal repair or to replace the system by a new one. At any time, the system may also be replaced preventively, and the aim of the decision maker is to minimize the total expected discounted cost. A dynamic programming approach is proposed to solve this problem. Sufficient conditions under which a repair-limit rule is optimal are given. An efficient algorithm is devised for the computation of such an optimal policy, and a numerical illustration is worked out. KEY WORDS Dynamic programming Stochastic control Optimal replacement Repair limit