Time Hollow/WMG

It is impossible to use a Hollow Pen to 'erase' a Hollow Pen user.
This is an extension (and cause) of the Pen users' Ripple-Effect-Proof Memory - they actually have a Ripple Effect Proof Existence. If it was attempted, then history would simply warp itself around the changes in such a way that the target still exists. This is why Irving always just tries to knife Ethan instead of stabbing him through a Hole into a point before Ethan became a Pen user. There are a couple of holes in this theory which are easily fixed up with a closer look:
 * The disappearance of Ethan's father. Note that he never actually died in the accident. Instead, the changes automatically shift to the point of Ethan bringing him through the Hole into the present.
 * The death of Irving's mother. Presumably, a Pen user can subvert their own immunity, but only by their own choice.
 * Possibly, this immunity was extended to Kori. Over decades of being outside time, she eventually became immune to being simply 'erased'. The girl from the ending was actually Kori as Ethan knows her. While things were changed such that Kori Prime grew up normally, history asserted that there would have to be a Kori just like the one that was outside time, including all memories of Ethan. Because of the extent to which history asserts itself, this Kori would also be genetically identical to her 'mother', meaning there would be nothing incestuous about a relationship between her and her 'cousin' Ethan.


 * Possible extension of the theory - stable time loops kick in whenever a user tries to pre-maturely erase another user, like the one we saw in the prologue.

The Omniscient Council of Vagueness is a Sequel Hook
Presumably, one wouldn't create a plot point that large simply to do nothing with it. It seems likely that it's actually a setup for a sequel, which will explain the Hollow Pens in greater detail, hopefully explaining the Ontological Paradox-- perhaps they sent the pen to Ethan and then it found itself in a time loop?

The ending is NOT an Stable Time Loop
The fact that both Kori and the dog are still alive and Derek's café is successful is a HUGE difference, specially since in the prologue Derek is asking for financial help and the café is not his and in the epilogue it is a successful place with Kori working in the kitchenn, not counting the lack of the antique clock in his room with the home-made cookies intead. Why Morris is still studying is anyone's guess, though. Maybe he just likes to.

The Hollow Pen was made by Aperture Science
The Portal Gun and Hollow Pen are very similar to each other; they're both handheld devices for travelling space and time respectively using portal technology and it is established that ApSci worked on time travel.

Hollow Pens of different colours work differently
The green Pen only seems to work when it glows, which only happens when you have flashbacks, which in turn only happens when time has been altered by a Pen. Therefore, for the green Pen at least, previous digging is required in order to start your own digging session, in which case how did the first Hollow Pen user dig? I remember Ethan mentioning that more experienced Pen users like Irving have more and different types of flashbacks than he does, so it seems logical that the workings of the Pen changes with experience. Of course, that still doesn't solve the problem of the first Pen user, who would have not been able to use the Pen in this scenario due to a lack of time alteration prior. The only solution I can see to this problem is that the orange Pen has extra, unknown abilities that allows its user to open holes at will, unlike green, which can only alter changed timelines.
 * Perhaps the pen changes colors as the user gains experience? The pen was green for Ethan and his dad because neither of them were experienced with it, but Irving's was orange because he's had decades of experience with his pen.