Abstract:Financial asset price movement impacts product demand and thus influences operational decisions of a firm. We develop and solve a general model that integrates financial risk hedging into a price-setting newsvendor. The optimal hedging strategy is found analytically, which leads to an explicit objective function for optimization of pricing and service levels. We find that, in general, the presence of hedging reduces the optimal price. It also reduces the optimal service level when the asset price trend positiv… Show more
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