2025/11/02 by Michael C. Fu, Ren, Xingyu, Fu, Michael C. +2
Business, Management and Accounting · Decision Sciences · Economics, Econometrics and Finance · #FOS: Electrical engineering #Risk and Portfolio Optimization #Stochastic processes and financial applications #Supply Chain and Inventory Management #Systems and Control (eess.SY) #electronic engineering #information engineering
paper · pdf · doi:10.48550/arxiv.2511.01022
openalex publication_date 2025/11/02 · openalex created_date 2025/11/06 · openalex updated_date 2026/07/28
We establish structural properties of optimal stopping problems under time-consistent dynamic (coherent) risk measures, focusing on value function monotonicity and the existence of control limit (threshold) optimal policies. While such results are well developed for risk-neutral (expected-value) models, they remain underexplored in risk-averse settings. Coherent risk measures typically lack the tower property and are subadditive rather than additive, complicating structural analysis. We show that value function monotonicity mirrors the risk-neutral case. Moreover, if the risk envelope associated with each coherent risk measure admits a minimal element, the risk-averse optimal stopping problem reduces to an equivalent risk-neutral formulation. We also develop a general procedure for identifying control limit optimal policies and use it to derive practical, verifiable conditions on the risk measures and MDP structure that guarantee their existence. We illustrate the theory and verify these conditions through optimal stopping problems arising in operations, marketing, and finance.