Optimal Pricing and Stocking Decisions for Newsvendor Problem With Value-at-Risk Consideration

Chun‐Hung Chiu · Tsan‐Ming Choi

52 citations0/0 files storedIEEE Transactions on Systems Man and Cybernetics - Part A Systems and Humans

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Supply Chain and Inventory Management Sustainable Supply Chain Management Risk and Portfolio Optimization

Abstract

Motivated by the popularity of VaR measure in financial applications, we study the classical newsvendor problem with Value-at-Risk (VaR) consideration and price-dependent demands. We first investigate the problem's structural properties and derive analytically the optimal joint stocking and pricing decisions. We then explore the difference between the optimal decisions under the VaR formulation and the classical expected profit-maximization model. Finally, we reveal an interesting analytical relationship between the inventory service level and the VaR measure. Insights are generated.

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References

1999Pricing and the Newsvendor Problem: A Review with Extensions 1980The Newsboy Problem under Alternative Optimization Objectives 2008Financing newsvendor inventory 2006Newsvendor solutions via conditional value-at-risk minimization 2007Mean–variance analysis of a single supplier and retailer supply chain under a returns policy 2009Mean–variance analysis of supply chains under wholesale pricing and profit sharing schemes 2007Channel coordination in supply chains with agents having mean-variance objectives☆2008Mean–Variance Analysis for the Newsvendor Problem

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