A multi-product risk-averse newsvendor with exponential utility function
- Authors
- CHOI, Sung yong; Andrzej, Ruszczyński
- Issue Date
- May-2011
- Publisher
- ELSEVIER SCIENCE BV
- Keywords
- Supply chain management; Risk analysis; Expected utility theory
- Citation
- EUROPEAN JOURNAL OF OPERATIONAL RESEARCH, v.214, no.1, pp.78 - 84
- Indexed
- SCIE
SCOPUS
- Journal Title
- EUROPEAN JOURNAL OF OPERATIONAL RESEARCH
- Volume
- 214
- Number
- 1
- Start Page
- 78
- End Page
- 84
- URI
- https://scholarworks.bwise.kr/hanyang/handle/2021.sw.hanyang/28143
- ISSN
- 0377-2217
- Abstract
- We consider a multi-product newsvendor using an exponential utility function. We first establish a few basic properties for the newsvendor regarding the convexity of the model and monotonicity of the impact of risk aversion on the solution.
When the product demands are independent and the ratio of the degree of risk aversion to the number of products is sufficiently small, we obtain closed-form approximations of the optimal order quantities. The approximations are as easy to compute as the risk-neutral solution. We prove that when this ratio approaches zero, the risk-averse solution converges to the corresponding risk-neutral solution. When the product demands are positively (negatively) correlated, we show that risk aversion leads to lower (higher) optimal order quantities than the solution with independent demands.
Using a numerical study, we examine convergence rates of the approximations and thoroughly study the interplay of demand correlation and risk aversion. The numerical study confirms our analytical results and further shows that an increased risk aversion does not always lead to lower order quantities, when demands are strongly negatively correlated.
- Files in This Item
-
Go to Link
- Appears in
Collections - 서울 경영대학 > 서울 경영학부 > 1. Journal Articles
Items in ScholarWorks are protected by copyright, with all rights reserved, unless otherwise indicated.