The risk-averse newsvendor problem under spectral risk measures: A classification with extensions

Arıkan, Emel; Fichtinger, Johannes

doi:10.1016/j.ejor.2016.06.002

Cited by 25 publications

(11 citation statements)

References 26 publications

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“…Therefore, the hazard rate order of risk aversion is a partial order (not a complete order). The fourth part of Lemma implies that the hazard rate order of risk aversion is stronger than the order defined by Arıkan and Fichtinger (). It is well known that the hazard rate order of random variables is not stronger than the usual stochastic order indicated by the cumulative distribution function (also known as the first‐order stochastic dominance ).…”

Section: Model Descriptionmentioning

confidence: 91%

“…Fichtinger () appears to be the first to consider spectral risk measures in the inventory ordering and pricing problem. More recently, Arıkan and Fichtinger () study the newsvendor problem under spectral risk measures and with different types of return formulations, focusing on the impact of risk‐aversion and cost parameters on the optimal ordering decision. Although the CVaR is a special case of spectral risk measure and has been prevalently used in operations management literature (e.g., Chen et al., ; Yuan et al., ), it has received very limited attention in the research on the interface of operations and finance.…”

Section: Literature Reviewmentioning

confidence: 99%

“…To order the level of a decision maker's risk aversion in the newsvendor problem, Arıkan and Fichtinger () compares the distortion function

Φ (x)

on the interval [0, 1] and indicates that

ϕ_{1} false(\cdot false)

reflects a more risk‐averse attitude than

ϕ_{2} false(\cdot false)

under the condition that

{normalΦ}_{1} false(x false) \geq {normalΦ}_{2} false(x false)

holds for any

x \in [0, 1]

. However, such an order of risk aversion is too weak to derive structural properties of the optimal solution with respect to the level of risk aversion in our model.…”

Section: Model Descriptionmentioning

confidence: 99%

“…In a newsvendor model without capital constraint under the spectral risk measure, as shown by Arıkan and Fichtinger (), the retailer's optimal order quantity is

{\overset{F}{true}}_{ϕ}^{- 1} false[w false(1 + r_{f} false) / p false]

. If the retailer's internal capital η is insufficient to afford the purchasing cost, she can borrow a loan from the bank to increase the order quantity.…”

Section: The Retailer's Problemmentioning

confidence: 99%

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The supplier's optimal guarantee policy in newsvendor finance

Jiang

2019

Int Trans Operational Res

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The retailer is a capital-constrained newsvendor and can borrow money from the bank if necessary. To help the retailer get a bank loan at a lower interest rate, the supplier provides guarantee for the retailer's loan up to a prespecified amount. In a Stackelberg game, the supplier decides the wholesale price and the guarantee amount as a leader, and then the retailer determines the order quantity and the amount of the loan as a follower. The supplier is risk-neutral while the retailer's risk preference is reflected by a spectral risk measure (risk-neutral, risk-averse, or risk-seeking). For a given wholesale price and guarantee amount, the retailer's objective function is quasi-concave in the order quantity. The optimal solutions for the supplier and the retailer are derived. The supplier's expected profit with optimized wholesale price increases with the guarantee amount, and thus the supplier's optimal policy is to provide a full guarantee for the retailer's loan. When the supplier can limit his guarantee responsibility by a proportion of the outstanding loan obligation, the supplier's optimal policy is also to provide a full guarantee. Even if the retailer incurs bankruptcy costs in the event of repayment default, the supplier's optimal guarantee policy remains the same in these two different forms of limited guarantee. However, when the wholesale price is exogenous, that is, not a decision variable, the full guarantee is not necessarily optimal for supplier.

show abstract

Section: Model Descriptionmentioning

confidence: 91%

Section: Literature Reviewmentioning

confidence: 99%

“…To order the level of a decision maker's risk aversion in the newsvendor problem, Arıkan and Fichtinger () compares the distortion function

Φ (x)

on the interval [0, 1] and indicates that

ϕ_{1} false(\cdot false)

reflects a more risk‐averse attitude than

ϕ_{2} false(\cdot false)

under the condition that

{normalΦ}_{1} false(x false) \geq {normalΦ}_{2} false(x false)

holds for any

x \in [0, 1]

. However, such an order of risk aversion is too weak to derive structural properties of the optimal solution with respect to the level of risk aversion in our model.…”

Section: Model Descriptionmentioning

confidence: 99%

“…In a newsvendor model without capital constraint under the spectral risk measure, as shown by Arıkan and Fichtinger (), the retailer's optimal order quantity is

{\overset{F}{true}}_{ϕ}^{- 1} false[w false(1 + r_{f} false) / p false]

. If the retailer's internal capital η is insufficient to afford the purchasing cost, she can borrow a loan from the bank to increase the order quantity.…”

Section: The Retailer's Problemmentioning

confidence: 99%

See 2 more Smart Citations

The supplier's optimal guarantee policy in newsvendor finance

Jiang

2019

Int Trans Operational Res

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“…Since some basic assumptions of the classical newsvendor model are no longer suitable to meet the actual needs in practice, it is not surprising to see that many extensions of the classical newsvendor model have been suggested [1][2][3].…”

Section: Introductionmentioning

confidence: 99%

Opportunity Loss Minimization and Newsvendor Behavior

Yan

Chan

2017

Discrete Dynamics in Nature and Society

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To study the decision bias in newsvendor behavior, this paper introduces an opportunity loss minimization criterion into the newsvendor model with backordering. We apply the Conditional Value-at-Risk (CVaR) measure to hedge against the potential risks from newsvendor's order decision. We obtain the optimal order quantities for a newsvendor to minimize the expected opportunity loss and CVaR of opportunity loss. It is proven that the newsvendor's optimal order quantity is related to the density function of market demand when the newsvendor exhibits risk-averse preference, which is inconsistent with the results in Schweitzer and Cachon (2000). The numerical example shows that the optimal order quantity that minimizes CVaR of opportunity loss is bigger than expected profit maximization (EPM) order quantity for high-profit products and smaller than EPM order quantity for lowprofit products, which is different from the experimental results in Schweitzer and Cachon (2000). A sensitivity analysis of changing the operation parameters of the two optimal order quantities is discussed. Our results confirm that high return implies high risk, while low risk comes with low return. Based on the results, some managerial insights are suggested for the risk management of the newsvendor model with backordering.

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Joint pricing and stocking decisions for a newsvendor problem with loss aversion and reference point effect

Qiu

Sun

2020

Manage Decis Econ

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This study investigates the joint pricing and stocking decisions for a loss‐averse retailer with reference point effect under stochastic demand. By solving an expected utility maximization model developed based on the prospect theory, the optimal pricing and stocking decisions are derived and compared with those of the classical newsvendor. The results show that the optimal decisions significantly depend on the loss aversion coefficient, optimism level, and reference effect strength. Smaller loss aversion coefficient and lower optimism level lead to higher expected utilities. In particular, a loss‐averse retailer with a smaller loss aversion coefficient benefits from a higher reference effect strength and vice versa.

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The risk-averse newsvendor problem under spectral risk measures: A classification with extensions

Cited by 25 publications

References 26 publications

The supplier's optimal guarantee policy in newsvendor finance

The supplier's optimal guarantee policy in newsvendor finance

Opportunity Loss Minimization and Newsvendor Behavior

Joint pricing and stocking decisions for a newsvendor problem with loss aversion and reference point effect

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