Inventory Policy in the Presence of Market Disruptions

Abstract

This paper presents a dynamic model concerning optimal inventory policies in the presence of market disruptions, which are often characterized by events with uncertain arrival time, severity and duration. The model is based on the framework of a continuous-time Markov decision process with a finite state space. We develop a general characterization of the optimal inventory policy, interpret it in economic terms, and then apply it to two special cases, yielding explicit analytic results.

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