A risk-averse newsvendor model under the CVaR criterion

A risk-averse newsvendor model under the CVaR criterion

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Article ID: iaor200970276
Country: United States
Volume: 57
Issue: 4
Start Page Number: 1040
End Page Number: 1044
Publication Date: Jul 2009
Journal: Operations Research
Authors: , ,
Keywords: newsboy problem, value at risk
Abstract:

The classical risk-neutral newsvendor problem is to decide the order quantity that maximizes the one-period expected profit. In this note, we consider a risk-averse newsvendor with stochastic price-dependent demand. We adopt Conditional Value-at-Risk (CVaR), a risk measure commonly used in finance, as the decision criterion. The aim of our study is to investigate the optimal pricing and ordering decisions in such a setting. For both additive and multiplicative demand models, we provide sufficient conditions for the uniqueness and existence of the optimal policy. Comparative statics show the monotonicity properties and other characteristics of the optimal pricing and ordering decisions. We also compare our results with those of the newsvendor with a risk-neutral attitude and a general utility function.

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