Draft: Notes on dynamic programming equations which solve cost models for dynamic systems

 

Deterministic Cost Models

Description	Cost Model	Dynamic Programming Equations	Restrictions
Finite Horizon Total Cost	$J^{\pi}\left(x_{0}\right)=\sum_{k=0}^{K}\alpha^{k}\cdot c_{k}\left(x_{k},\pi\left(x_{k}\right)\right)$	$V_{k}^{\pi}\left(x\right)=c_{k}\left(x,\pi\left(x\right)\right)+\alpha\cdot V_{k+1}^{\pi}\left(f\left(x,\pi\left(x\right)\right)\right)$,$\forall k\in\left\{ 0,\cdots,K-1\right\}$ $V_{K}^{\pi}\left(x\right)=c_{K}\left(x,\pi\left(x\right)\right)$	$0\leq\alpha<1$
Infinite Horizon Total Cost	$J^{\pi}\left(x_{0}\right)=\sum_{k=0}^{\infty}\alpha^{k}\cdot c\left(x_{k},\pi\left(x_{k}\right)\right)$	$V^{\pi}\left(x\right)=c\left(x,\pi\left(x\right)\right)+\alpha\cdot V^{\pi}\left(f\left(x,\pi\left(x\right)\right)\right)$	$0\leq\alpha<1$
Finite Horizon Shortest Path	$J^{\pi}\left(x_{0}\right)=\sum_{k=0}^{K}\alpha^{k}\cdot c_{k}\left(x_{k},\pi\left(x_{k}\right)\right)$	$V_{k}^{\pi}\left(x\right)=c_{k}\left(x,\pi\left(x\right)\right)+\alpha\cdot V_{k+1}^{\pi}\left(f\left(x,\pi\left(x\right)\right)\right)$,$\forall k\in\left\{ 0,\cdots,K-1\right\}$ $V_{K}^{\pi}\left(x\right)=c_{K}\left(x,\pi\left(x\right)\right)$	$0\leq\alpha\leq1$ $\left\{ x\in\chi|c\left(x,\pi\left(x\right)\right)=0\right\} \neq\left\{ \oslash\right\}$
Infinite Horizon Shortest Path	$J^{\pi}\left(x_{0}\right)=\sum_{k=0}^{\infty}\alpha^{k}\cdot c\left(x_{k},\pi\left(x_{k}\right)\right)$	$V^{\pi}\left(x\right)=c\left(x,\pi\left(x\right)\right)+\alpha\cdot V^{\pi}\left(f\left(x,\pi\left(x\right)\right)\right)$	$0\leq\alpha\leq1$ $\left\{ x\in\chi|c\left(x,\pi\left(x\right)\right)=0\right\} \neq\left\{ \oslash\right\}$
Average Cost	$J^{\pi}\left(x_{0}\right)=\underset{K\rightarrow\infty}{\lim}\frac{1}{K}\sum_{k=0}^{K}\alpha^{k}\cdot c\left(x_{k},\pi\left(x_{k}\right)\right)$	$V^{\pi}\left(x\right)+\lambda=c\left(x,\pi\left(x\right)\right)+V^{\pi}\left(f\left(x,\pi\left(x\right)\right)\right)$	$0\leq\alpha<1$ $V^{\pi}\left(x_{ref}\right)=0$ for some $x_{ref}\in\chi$

 

Stochastic Cost Models

Description	Cost Model	Dynamic Programming Equations	Restrictions
Finite Horizon Total Cost	$J^{\pi}\left(x_{0}\right)=E^{W}\left[\sum_{k=0}^{K}\alpha^{k}\cdot c_{k}\left(x_{k},\pi\left(x_{k}\right),w\right)\right]$	$V_{k}^{\pi}\left(x\right)=E^{W}\left[c_{k}\left(x,\pi\left(x\right),w\right)+\alpha\cdot V_{k+1}^{\pi}\left(f\left(x,\pi\left(x\right),w\right)\right)\right]$ $V_{K}^{\pi}\left(x\right)=E^{W}\left[c_{K}\left(x,\pi\left(x\right)\right)\right]$	$0\leq\alpha<1$
Infinite Horizon Total Cost	$J^{\pi}\left(x_{0}\right)=E^{W}\left[\sum_{k=0}^{\infty}\alpha^{k}\cdot c\left(x_{k},\pi\left(x_{k}\right),w\right)\right]$	$V^{\pi}\left(x\right)=E^{W}\left[c\left(x,\pi\left(x\right),w\right)+\alpha\cdot V^{\pi}\left(f\left(x,\pi\left(x\right),w\right)\right)\right]$	$0\leq\alpha<1$
Finite Horizon Shortest Path	$J^{\pi}\left(x_{0}\right)=E^{W}\left[\sum_{k=0}^{K}\alpha^{k}\cdot c_{k}\left(x_{k},\pi\left(x_{k}\right),w\right)\right]$	$V_{k}^{\pi}\left(x\right)=E^{W}\left[c_{k}\left(x,\pi\left(x\right),w\right)+\alpha\cdot V_{k+1}^{\pi}\left(f\left(x,\pi\left(x\right),w\right)\right)\right]$ $V_{K}^{\pi}\left(x\right)=E^{W}\left[c_{K}\left(x,\pi\left(x\right)\right)\right]$	$0\leq\alpha\leq1$ $\left\{ x\in\chi|c\left(x,\pi\left(x\right)\right)=0\right\} \neq\left\{ \oslash\right\}$
Infinite Horizon Shortest Path	$J^{\pi}\left(x_{0}\right)=E^{W}\left[\sum_{k=0}^{\infty}\alpha^{k}\cdot c\left(x_{k},\pi\left(x_{k}\right),w\right)\right]$	$V^{\pi}\left(x\right)=E^{W}\left[c\left(x,\pi\left(x\right),w\right)+\alpha\cdot V^{\pi}\left(f\left(x,\pi\left(x\right),w\right)\right)\right]$	$0\leq\alpha\leq1$ $\left\{ x\in\chi|c\left(x,\pi\left(x\right)\right)=0\right\} \neq\left\{ \oslash\right\}$
Average Cost	$J^{\pi}\left(x_{0}\right)=E^{W}\left[\underset{K\rightarrow\infty}{\lim}\frac{1}{K}\sum_{k=0}^{K}\alpha^{k}\cdot c\left(x_{k},\pi\left(x_{k}\right),w\right)\right]$	$V^{\pi}\left(x\right)+\lambda=E\left[c\left(x,\pi\left(x\right),w\right)+V^{\pi}\left(f\left(x,\pi\left(x\right),w\right)\right)\right]$	$0\leq\alpha<1$ $V^{\pi}\left(x_{ref}\right)=0$ for some $x_{ref}\in\chi$

 

Risk Aware/Averse Stochastic Cost Models

Description	Cost Model	Dynamic Programming Equations	Restrictions
Certainty Equivalence with exponential utility	$J^{\pi}\left(x_{0}\right)=\underset{K\rightarrow\infty}{\limsup}\frac{1}{K}\cdot\frac{1}{\gamma}\cdot\ln\left(E^{W}\left[\exp\left(\sum_{k=0}^{K-1}c\left(x,\pi\left(x\right),w\right)\right)\right]\right)$
Mean-Variance

 

Cost Models That don’t work or have issues

Description	Cost Model	Issues
Expected exponential disutility	$J^{\pi}\left(x_{0}\right)=\underset{K\rightarrow\infty}{\limsup}\frac{1}{K}\cdot E^{W}\left[\textrm{sgn}\left(\gamma\right)\cdot\exp\left(\gamma\cdot\sum_{k=0}^{K-1}c\left(x,\pi\left(x\right),w\right)\right)\right]$	Does not discriminate among policies
Different version of expected exponential disutility	$J^{\pi}\left(x_{0}\right)=\underset{K\rightarrow\infty}{\limsup}\frac{1}{\gamma}\cdot\log\left(E^{W}\left[\exp\left(\gamma\cdot\frac{\gamma}{K}\sum_{k=0}^{K-1}c\left(x,\pi\left(x\right),w\right)\right)\right]\right)$	Generally reduces to cost average

 

References

• B. Deourny, D. Ernst, and L. Wehenkel, Risk-Aware Decision Making and Dynamic Programming
• J. Harney and P. Doshi, Risk-Sensitive Querying for Adaptive Service Compositions 
• G. Avila-Godoy, Modularity Results and Risk Sensitive Controller Markov Chains: A Case Study
• R. Cavazos-Cadena and R. Montes-De-Oca, Optimal Stationary Policies in Risk Sensitive Dynamic Programs with Finite State Space and Non-negative Rewards, Application Mathematicae, 27, 2 (2000), pp 167-185.
• A. Brau and E. Fernandez-Gaucherand, Controlled Markov Chains with Risk-Sensitive Exponential Average Criteria, Proceedings of 36th Conference on Decision and Control, San Diego, Calif, Dec 1997.
• M. Koenig and J. Meissner, Risk Minimizing Strategies for Revenue Mangement Problems with Target Values.
• M. Koenig and J. Meissner, Value at Risk Optimal Policies for RM Problems

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