Dynamic Risk Optimization

In this chapter, we present methods to quantify the risk of a random sequence Z1,…,ZT. When the sequence depends on our decisions made at stages 1, …, T, the risk evaluation and decision-making should form a cohesive approach. This implies that at each stage t, we need to be able to evaluate the risk of the current and future outcomes Zt, …, ZT. The theory of dynamic risk is concerned with consistent ways of obtaining such evaluations and using them in optimization models.