DOI: 10.1016/j.ijpe.2020.107915
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Abstract: Considered is a retailer (she) facing non-stationary stochastic demand. Demand can be fully observed and backlogged, consequently the retailer can update the initial demand by a Bayesian approach. To alleviate the demand risk, the retailer may use a secondary opportunity to replenish through an option contract. In addition, the retailer also has access to immediate loan if she faces capital constraints and risk-free investment if she has surplus funds. The paper presents a recourse approach to solve the two-st…

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