Name
Abstract | ||
|---|---|---|
Traditional inventory models focus on risk-neutral decision makers, i.e., characterizing replenishment strategies that maximize expected total profit, or equivalently, minimize expected total cost over a planning horizon. In this paper, we propose a framework for incorporating risk aversion in multiperiod inventory models as well as multiperiod models that coordinate inventory and pricing strategies. We show that the structure of the optimal policy for a decision maker with exponential utility functions is almost identical to the structure of the optimal risk-neutral inventory (and pricing) policies. These structural results are extended to models in which the decision maker has access to a (partially) complete financial market and can hedge its operational risk through trading financial securities. Computational results demonstrate that the optimal policy is relatively insensitive to small changes in the decision-maker's level of risk aversion. |
Year | DOI | Venue |
|---|---|---|
2007 | 10.1287/opre.1070.0429 | Operations Research |
Keywords | Field | DocType |
traditional inventory model,multiperiod inventory model,complete financial market,risk-neutral decision maker,inventory management,financial security,optimal risk-neutral inventory,operational risk,risk aversion,optimal policy,decision maker,uncertainty,risk assessment,decision analysis,risk,policies | Decision analysis,Economics,Optimal decision,Time horizon,Inventory theory,Inventory control,Exponential utility,Risk aversion,Pricing strategies,Operations management | Journal |
Volume | Issue | ISSN |
55 | 5 | 0030-364X |
Citations | PageRank | References |
61 | 3.71 | 10 |
Authors | ||
4 | ||
Name | Order | Citations | PageRank |
|---|---|---|---|
| Xin Chen | 1 | 686 | 46.82 |
| Melvyn Sim | 2 | 1909 | 117.68 |
| David Simchi-Levi | 3 | 1449 | 151.53 |
| Peng Sun | 4 | 420 | 26.68 |