Newsvendor solutions via conditional value-at-risk minimization

Gotoh, Jun‐ya; Takano, Yasunari

doi:10.1016/j.ejor.2006.03.022

Cited by 235 publications

(150 citation statements)

References 18 publications

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“…Most of these papers, however, consider single period settings; see for example, Gotoh and Takano (2007) and Gao et al (2011) for newsvendor problems, and Tomlin (2006) in the context of flexibility and supply disruptions. Further, these papers do not consider financial hedging decisions.…”

Section: Working Papermentioning

confidence: 99%

Dynamic Risk Management of Commodity Operations: Model and Analysis

Devalkar

Anupindi

Sinha

2018

M&SOM

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We consider the dynamic risk management problem for a commodity processor facing risk costs. The firm procures an input commodity and processes it to produce an output commodity over a multi-period horizon. The processed commodity is sold using forward contracts while the input itself can be traded at the end of the horizon. The firm can also trade financial instruments to manage the commodity price risk, but cannot hedge the risk completely. Using the concept of conditional risk mappings, we extend the single period conditional value at risk (CVaR) measure to a dynamic setting and ensure a time-consistent representation of the firm's risk management objective. In a partially complete market framework, we show that the optimal financial trading policy is a CVaR-replicating portfolio. Contingent on optimal financial trading, we show that the optimal procurement and processing policies are characterized by price and horizon dependent inventory thresholds. We show, analytically, that the procurement threshold increases with risk costs during the horizon. Our numerical studies show that optimizing a time-consistent risk measure results in better risk control over the entire horizon when compared to optimizing the CVaR of total profits. We also find that myopic and risk-neutral optimal policies are poor substitutes for the optimal risk management policy, especially when the firm faces significant risk costs.

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Section: Working Papermentioning

confidence: 99%

Dynamic Risk Management of Commodity Operations: Model and Analysis

Devalkar

Anupindi

Sinha

2018

M&SOM

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“…There exist some studies applying CVaR to the newsvendor problem. Gotoh and Takano [39] first adopted CVaR minimization in a newsvendor problem with a risk averse retailer. They showed the good computational characteristics of CVaR such that the CVaR minimization problem can be represented as a linear program.…”

Section: Literature Reviewmentioning

confidence: 99%

Risk Analysis of a Two-Level Supply Chain Subject to Misplaced Inventory

Zhu

Lee

2017

Applied Sciences

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Abstract:Misplaced inventory is prevalent in retail stores and may lead to the overall poor performance of the supply chain. We explore the impact of misplaced inventory on a two-level supply chain, which consists of a risk-neutral supplier and a risk-averse retailer. The supplier decides the wholesale price to maximize her profit, whereas the retailer decides the order quantity to maximize his utility. Under the Conditional Value-at-Risk (CVaR) criterion, we formulate the problem as a Stackelberg game model and obtain the equilibrium solutions in three cases: (i) information asymmetry about inventory errors exists; (ii) the retailer shares information about inventory errors with the supplier; and (iii) in order to reduce misplaced inventory, the supply chain deploys Radio-Frequency Identification (RFID) technology. The benefits of information sharing and RFID implementation are explored. A revenue and cost sharing contract is proposed to coordinate the supply chain and to allocate the cost savings from RFID implementation among supply chain participants. Finally, we provide managerial insights for risk-averse decision makers that are considering investing in the RFID technology.

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“…Gotoh and Takano [23] investigated the risk-sensitive newsvendor problem under the objective of minimizing the conditional value-at-risk (CVaR), which is a coherent risk measure. Let ∆(x, Q) denote a particular loss function of interest and α denote some pre-specified target level of the loss function.…”

Section: Buyer Risk Profilementioning

confidence: 99%

The newsvendor problem: Review and directions for future research

Qin

Wang

Vakharia

et al. 2011

European Journal of Operational Research

414

173

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In this paper, we review the contributions to date for analyzing the newsvendor problem.Our focus is on examining the specific extensions for analyzing this problem in the context of modeling customer demand, supplier costs, and the buyer risk profile. More specifically, we analyze the impact of market price, marketing effort, and stocking quantity on customer demand; how supplier prices can serve as a coordination mechanism in a supply chain setting; integrating alternative supplier pricing policies within the newsvendor framework; and how the buyer's risk profile moderates the newsvendor order quantity decision. For each of these areas, we summarize the current literature and develop extensions. Finally, we also propose directions for future research.

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Newsvendor solutions via conditional value-at-risk minimization

Cited by 235 publications

References 18 publications

Dynamic Risk Management of Commodity Operations: Model and Analysis

Dynamic Risk Management of Commodity Operations: Model and Analysis

Risk Analysis of a Two-Level Supply Chain Subject to Misplaced Inventory

The newsvendor problem: Review and directions for future research

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