Open AccessNote—A Replacement Problem using a Wald Identity for Discounted Variables
Author(s) -
Richard F. Serfozo
Publication year - 1974
Publication title -
management science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.954
H-Index - 255
eISSN - 1526-5501
pISSN - 0025-1909
DOI - 10.1287/mnsc.20.9.1314
Subject(s) - markov chain , mathematical optimization , identity (music) , markov decision process , computer science , random variable , markov process , work (physics) , mathematics , mathematical economics , statistics , mechanical engineering , physics , acoustics , engineering
A fundamental model is presented for determining optimal replacement times for stochastically deteriorating equipment. It is an elementary Markov decision model in which an optimal policy is to replace an item when and only when its operating cost reaches a certain level Wald type identities for discounted random variables are introduced to derive a tractable method for computing these replacement levels. The analysis herein simplifies and corrects earlier work in this area.