Mean-Risk Analysis: An Introduction

Choi, Tsan‐Ming; Chiu, Chun-Hung

doi:10.1007/978-1-4614-3869-4_1

Cited by 4 publications

(4 citation statements)

References 73 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…We first explore the case where the agents have the MV objective and then we consider the case where the agents have the MDR objective. We explore these two objectives because they are widely explored and even claimed to be equivalent (Choi & Chiu, 2012), but we find that this is not the case in the sense that the Pareto‐optimal solutions have different structures under these two objectives.…”

Section: Challenges Of Using Po Criterion: Pareto Optimality and Cont...mentioning

confidence: 98%

Pareto optimality and contract dependence in supply chain coordination with risk‐averse agents

Zhang

Sethi

Choi

et al. 2022

Production and Operations Management

View full text Add to dashboard Cite

In recent years, research on supply chain coordination (SCC) with risk-averse agents has received much attention. Previous studies are primarily concerned with the coordination of a single manufacturer-single retailer supply chain using different definitions of SCC. What is lacking is a comprehensive analysis of the achievability of SCC. In this paper, we provide a systematic analysis of SCC with risk-averse agents. We see that three definitions of SCC have been proposed in the literature to investigate SCC with risk-averse agents, among which the one based on Pareto optimality (PO) stands out.Here we explore the challenges of using the PO criterion. Specifically, we first examine the standard two-agent supply chain under the mean-variance (MV) and meandownside-risk (MDR) objectives. What we find is that the achievability of PO depends on the contract type. The wholesale price contract even with a side payment may not lead to PO. Also, unlike under MV where risk sharing is Pareto optimal, we observe that the least risk-averse agent must take all the risk to achieve SCC under MDR. Importantly, we extend our analysis to multiretailer, multimanufacturer, and multitier supply chains. In each case, we characterize the efficient Pareto-optimal manifold in the multidimensional space and design coordinating contracts that result in Pareto-optimal actions acceptable to all agents. We also discover that identifying PO across all the contract forms is difficult when some other risk-aversion criteria are considered. We conclude by providing suggestions and methods for SCC when we are unable to identify PO.

show abstract

Section: Challenges Of Using Po Criterion: Pareto Optimality and Cont...mentioning

confidence: 98%

Pareto optimality and contract dependence in supply chain coordination with risk‐averse agents

Zhang

Sethi

Choi

et al. 2022

Production and Operations Management

View full text Add to dashboard Cite

show abstract

“…A number of studies have concentrated on risk-averse behavior in supply chains by employing the following three typical methods, namely, value-at-risk (VaR, see the pioneering work by Luciano et al ( 2003 ) and Tapiero ( 2005 )), conditional value-at-risk (CVaR, see Wu et al ( 2006 )), and mean–variance (MV, see Chiu and Choi ( 2016 ), Wang et al ( 2019 ), Choi et al ( 2020 )). Choi and Chiu ( 2012 ) provide a comprehensive review on risk analysis employing VaR, CVaR, and MV in stochastic supply chains and demonstrate that risk aversion is commonly incorporated in supply chains management studies without financial constraint. However, few studies on supply chain management considering members’ risk aversion when facing financial constraint have been conducted.…”

Section: Literature Reviewmentioning

confidence: 99%

Financing the capital-constrained online retailer with risk aversion: coordinating strategy analysis

et al. 2022

View full text Add to dashboard Cite

This paper considers a capital-constrained online retailer (OR) selling products through an e-commerce platform (EP) who also offers financial services to retailers. During the selling season, the OR exerts an effort to promote market demand through activities like sales promotions, advertising and live-streaming selling events. To investigate the EP-based financing scheme, a game-theoretic model is developed where the EP functions as the leader determining the interest rate and platform usage fee rate, and the OR functions as the follower determining the order quantity and effort level. We explore the impacts of the OR’s risk-aversion and find that when the OR is risk-averse (1) she sets a high effort level, and the EP sets a high usage fee rate; (2) a high risk-averse OR orders less products than low risk-averse OR. We design specific revenue-cost sharing contracts to coordinate the supply chain and demonstrate that the designed contracts are feasible. Moreover, we find that the OR consistently prefers EP financing compared to bank financing.

show abstract

“…2009), value‐at‐risk (VaR) (Chiu and Choi 2010, Kouvelis and Li 2018, Park et al. 2017), and mean‐risk objectives (Chen and Federgruen 2000, Choi and Chiu 2012) have been proposed. In particular, the mean‐variance (MV) objective is very popular owing to its nice structural properties, as well as the intuitive meanings behind the mean and variance (Chiu et al.…”

Section: Introductionmentioning

confidence: 99%

Supply Chains Involving a Mean‐Variance‐Skewness‐Kurtosis Newsvendor: Analysis and Coordination

Zhang

Sethi

Choi

et al. 2020

Production and Operations Management

View full text Add to dashboard Cite

The classical newsvendor problem seeks to minimize the expected inventory cost or maximize the expected profit. But optimizing an expected value alone does not fully capture the stochastic nature of the newsvendor problem. Inspired by the higher‐moment analyses explored in finance literature, we conduct a mean‐variance‐skewness‐kurtosis (MVSK) analysis for the newsvendor problem. We first derive the analytical expressions for the profit’s mean, variance, skewness, and kurtosis in the standard newsvendor setting, and reveal their structural properties. We then establish various MVSK optimization problems and find the solution to each of them. We show that kurtosis aversion always induces the newsvendor to order less, while skewness seeking can induce the newsvendor to order either more or less depending on the specific structure of the profit’s skewness, which is affected by the symmetric and asymmetric properties of the demand distribution. Finally, based on the Pareto‐optimality concept, we address the challenge of supply chain coordination (SCC) in the presence of MVSK agents in two specific cases: (i) each agent maximizes its MVSK‐objective‐function and (ii) each agent maximizes its expected profit function, subject to given constraints on the profit’s variance, skewness, and kurtosis. In each case, we explore whether and how the supply chain can be coordinated. We find that considering the MVSK preferences of supply chain agents will affect the achievability of SCC and flexibility of the coordinating contract. We also uncover that if we assume an individual MVSK agent to be an MV one, the achievability of SCC by contracts will be very much negatively affected.

show abstract

Mean-Risk Analysis: An Introduction

Cited by 4 publications

References 73 publications

Pareto optimality and contract dependence in supply chain coordination with risk‐averse agents

Pareto optimality and contract dependence in supply chain coordination with risk‐averse agents

Financing the capital-constrained online retailer with risk aversion: coordinating strategy analysis

Supply Chains Involving a Mean‐Variance‐Skewness‐Kurtosis Newsvendor: Analysis and Coordination

Contact Info

Product

Resources

About