Models and algorithms for skip-free Markov decision processes on trees

We introduce a class of models for multidimensional control problems that we call skip‐free Markov decision processes on trees. We describe and analyse an algorithm applicable to Markov decision processes of this type that are skip‐free in the negative direction. Starting with the finite average cost case, we show that the algorithm combines the advantages of both value iteration and policy iteration–it is guaranteed to converge to an optimal policy and optimal value function after a finite number of iterations but the computational effort required for each iteration step is comparable with that for value iteration. We show that the algorithm can also be used to solve discounted cost models and continuous‐time models, and that a suitably modified algorithm can be used to solve communicating models.