on the integration of production and financial hedging decisions in global markets we study the integrated operational and financial hedging decisions faced by a global firm who sells to both home and foreign markets production occurs either at a single facility located in one of the markets or at two facilities one in each market the company has to invest in capacity before the selling season starts when the demand in both markets and the currency exchange rate are uncertain the currency exchange rate risk can be hedged by delaying allocation of the capacity to specific markets until both the currency and demand uncertainties are resolved and or by buying financial option contracts on the currency exchange rate when capacity commitment is made a mean variance utility function is used to model the firm s risk aversion in decision making we derive the joint optimal capacity and financial option decision and analyze the impact of the delayed allocation option and the financial options on capacity commitment and the firm s performance we show that the firm s financial hedging strategy ties closely to and can have both quantitative and qualitative impact on the firm s operational strategy the use or lack of use of financial hedges can go beyond affecting the magnitude of capacity levels by altering global supply chain structural choices such as the desired location and number of production facilities to be employed to meet global demand

dual sourcing of a newsvendor with exponential utility of profit abstract dual sourcing strategies supplement inflexible low cost country sourcing with quick response manufacturing due to short product life cycles combined with uncertain demand dual sourcing strategies are very common in several industries in particular in the sporting goods or fashion industries even though scholars have given some attention to the analysis of dual sourcing strategies the importance of the decision maker s risk preferences has not been covered yet in this paper we analyse dual sourcing strategies using an extended single product newsvendor model with two order points different risk preferences will be modelled using an exponential utility function within realistic parameter ranges the optimal order quantities can only be numerically computed the findings of this paper show that dual sourcing strategies are always preferable to an exclusive offshore approach as long as the onshore ordering costs are smaller than the selling price of the considered product the more risk averse the decision maker the smaller the offshore order quantity will be

the risk averse newsvendor problem under spectral risk measures a classification with extensions abstract we study the risk averse newsvendor problem by defining the objective function as a spectral risk measure we analyze the problem under different types of return formulations focusing on the impact of risk aversion and cost parameters on the optimal ordering decision we show that the monotonicity of the return function with respect to random demand determines the structural properties of the problem when the return function is monotone in demand realization optimal order quantity does not depend on the return margin but only on the overage and underage costs and it has a monotone relation to risk aversion however if return is non monotone in demand impact of risk aversion depends on the specific setting and it can also be non monotone additionally it is non increasing in the margin which leads to varying impact of selling price under distinct settings

a utility adjusted newsvendor model with stochastic demand abstract we develop a continuous time newsvendor model to determine the optimal inventory level for commodities in an established financial market unlike most models in literature the newsvendor is not necessarily risk neutral and chooses the order quantity that maximises the expected utility of the cash flow at the end of the period the newsvendor exploits the correlation between stochastic demand and the price of the commodities in order to manage risks by investing in a portfolio of financial instruments the decision problem therefore includes not only the determination of the optimal ordering policy but also at the same time the selection of a portfolio that maximises her utility further we demonstrate that our model compared to a myopic approach i e no hedging requires significantly lower levels of inventory buffer to mitigate demand uncertainty thus better utilising capital

on sales effort and pricing decisions under alternative risk criteria abstract in the literature different risk criteria are proposed for risk averse decision making but it is often unclear which risk criteria should be used and what their differences may be this study investigates this problem when a risk averse make to order firm decides its pricing and sales effort two factors affecting demand we consider alternative risk criteria commonly used in the literature namely expected utility theory eut mean variance mv mean semideviation ms value at risk var conditional value at risk cvar and loss aversion la we find that all of these criteria lead to similar qualitative behaviors regarding how risk loss averse decisions deviate from risk neutral ones a particularly interesting result is that the form of demand randomness i e additive or multiplicative can completely reverse the effect of risk loss aversion in certain cases we also find that the risk aversion models i e eut mv ms var and cvar are essentially equivalent in inducing the same set of optimal solutions under adverse market states however loss aversion is a mild version of risk aversion in that the la model can only lead to a subset of the solutions generated by other models these results may not be valid for other applications such as the newsvendor pricing problem so we can conclude that the relationship between alternative risk criteria is case sensitive and should be evaluated more carefully

a multi product continuous review inventory system with stochastic demand backorders and a budget constraint abstract common characteristics of inventory systems include uncertain demand and restrictions such as budgetary or storage space constraints several authors have examined budget constrained multi item stochastic inventory systems controlled by continuous review policies without considering marginal shortage costs existing models assume that purchasing costs are paid at the time an order is placed which is not always the case since in some systems purchasing costs are paid when orders arrive in the latter case the maximum investment in inventory is random since the inventory level when an order arrives is a random variable hence payment of purchasing costs on delivery yields a stochastic budget constraint for inventory this paper models a multi item stochastic inventory system with backordered shortages when estimation of marginal backorder cost is available and payment is due upon order arrival the budget constraint can easily be converted into a storage constraint

risk aversion in inventory management traditional inventory models focus on risk neutral decision makers i e characterizing replenishment strategies that maximize expected total profit or equivalently minimize expected total cost over a planning horizon in this paper we propose a framework for incorporating risk aversion in multiperiod inventory models as well as multiperiod models that coordinate inventory and pricing strategies we show that the structure of the optimal policy for a decision maker with exponential utility functions is almost identical to the structure of the optimal risk neutral inventory and pricing policies these structural results are extended to models in which the decision maker has access to a partially complete financial market and can hedge its operational risk through trading financial securities computational results demonstrate that the optimal policy is relatively insensitive to small changes in the decision maker s level of risk aversion

foreign interest rate shocks and exchange rate regimes in east asia using a theoretical dynamic stochastic general equilibrium model and an empirical panel vector autoregression we assess the transmission of foreign real interest rate shocks on the volatility of various key macroeconomic variables in nine small open economies in east asia taking into account the role of exchange rate regimes both the theoretical and empirical findings confirm the hypothesis that flexible exchange rate may work as a shock absorber when the economy is hit by foreign real interest rate shocks the findings suggest a clear trade off between the volatility of real exchange rate and real output to foreign interest rate shocks both the us and g7 real interest rates where the responses of real output are mitigated in countries that have more flexible exchange rate regime

optimal ordering quantities for multi products with stochastic demand return cvar model abstract multi product ordering problem with stochastic demand is often optimized by the expected cost reduction or the expected profit improvement in most of previous works moreover risk preference of decision maker is often ignored evidently this approach is impracticable when the corresponding volatility is larger based on the outstanding characteristics of conditional value at risk cvar as a risk measure the paper proposes an optimal order model for multi product with cvar constraints also the model is finally formulated as a linear programming problem the model is simulated for the case of a newsvendor to analyze to what degree it succeeds the solution in fact is bound consistent fully with the decision maker s intuition on return risk decision making finally results of return cvar model and the classical model are compared and shows that return cvar model is more flexible than the classical model

sequential correlated equilibria in stopping games in many situations such as trade in stock exchanges agents have many opportunities to act within a short interval of time the agents in such situations can often coordinate their actions in advance but coordination during the game consumes too much time an equilibrium in such situations has to be sequential in order to handle mistakes made by players in this paper we present a new solution concept for infinite horizon dynamic games which is appropriate for such situations a sequential normal form correlated approximate equilibrium under additional assumptions we show that every such game admits this kind of equilibrium

relative prices and inflation new evidence from different inflationary contexts this paper analyses the relationship between inflation and relative price variability in the direction of the latter in two countries with very different inflationary experiences argentina and spain to address this objective using disaggregated price indexes the wholesale price index for argentina and the consumer price index for spain we delimitate different inflationary regimes and compute a set of regressions for each country our results suggest evidence in favour of the non neutrality of inflation mostly in hyperinflation periods and do not support either the menu costs or the signal extraction approaches we also detect significant structural changes in the relationship depending on the inflationary regime

can world real interest rates explain business cycles in a small open economy abstract while the world real interest rate is potentially an important mechanism for transmitting international shocks to small open economies much of the recent quantitative research that studies this mechanism concludes that it has little effect on output investment and net exports we re examine the importance of world real interest rate shocks using an approach that reverses the standard real business cycle methodology we begin with a small open economy business cycle model but rather than specifying the stochastic processes for the shocks and then solving and simulating the model to evaluate how well these shocks explain business cycles we use the model to back out the shocks that are consistent with the model s observable endogenous variables then we use variance decompositions to examine the importance of each shock we apply this methodology to canada and find that world real interest rate shocks can play an important role in explaining the cyclical variation in a small open economy in particular they can explain up to one third of the fluctuations in output and more than half of the fluctuations in net exports and net foreign assets

inventory control with an exponential utility criterion a base stock policy is shown to be optimal when a dynamic version of the news vendor model is optimized with respect to an exponential utility criterion

the newsstand problem a capacitated multiple product single period inventory problem abstract practically all of the many earlier papers on the newsboy problem consider a single newsboy product with no capacity constraint this paper presents formulations and solution procedures for handling multiple newsboy type products under two cases a one resource capacity constraint and b multiple resource constraints for case a we present a necessary extension to the classical hadley whitin result for handling general demand distributions for case b we present a solution procedure that can efficiently handle the common situation where a very large number of products are involved

impact of risk aversion on optimal decisions in supply contracts abstract we introduce the concept of conditional value at risk as the evaluation criterion in a supply contract model we first derive the manufacturer s optimal decisions and then analyze the impact of risk aversion on the manufacturer s decisions we follow by conducting numerical experiments to observe how the manufacturer s risk attitude affects his decisions we obtain results that characterize the explicit relationship between the manufacturer s risk attitude and his optimal decisions we also show the dependence of the decision variables on the price and cost parameters which is seldom given in the literature

reordering strategies for a newsboy type product abstract this paper considers the very common situation in which a single period newsboy type product may be ordered or produced twice during a season period we show that the explicit consideration of this reorder opportunity makes the newsboy problem very much richer the specific version considered in this paper allows a reorder during mid season after the early season demand has been observed and this reorder arrives after a given lead time the demand distributions during the various portions of the season may have very general distribution forms also the late season and early season demands may be dependent solution procedures are developed to find the best way to exploit this reorder opportunity and our numerical solutions indicate that this reorder opportunity can improve profits considerably as long as the product s profit margin is not very high other real world variations of this two order newsboy problem are briefly discussed

environmental performance impacts of vendor buyer coordination abstract effective coordination is a hallmark of successful supply chain management without such coordination vendors and buyers will act independently to make decisions that optimize their own objectives e g maximize their respective profits or minimize their costs this non coordinated approach is unlikely to be optimal when one considers the supply chain as a whole most vendor buyer coordination research concentrates only on an objective of minimizing total system costs but with the increasing environmental awareness in business and the general public many organizations acknowledge that strategies and practices which incorporate environmental considerations are essential to acquire a competitive advantage the objectives of this research are concerned not only with the economic impact of vendor buyer coordination on the organizations involved but also with the wider effects on society such as the effects of pollution on the environment this research demonstrates how to effectively incorporate environmental issues into vendor buyer coordination first we study the impacts of cost minimizing vendor buyer coordination models on environmental performance when compared with independent non coordinated optimization second we develop a single vendor multi buyer coordination model that includes both costs and environmental performance measures in its objective function a numerical example and a real case study show how both the total system cost and the environmental performance can be simultaneously improved

product variety arising from hedging in the fashion supply chains consider a well defined fashion apparel category where the variants are distinguished by style and colour and are subject to two equally likely states of the world state1 when some variants become popular and others unpopular and state2 when the reverse takes place we analyse the optimal portfolio and variety arising from hedging against uncertainty triggered by the states by integrating the markowitz and the newsboy models while carefully considering demand correlations we show that due to the complex structure of the uncertainty building hedging portfolios with competing items is necessary for optimality we also show how mis specifying the distributions can lead to very bad trade offs between risk and expected profit caused by a lack of proper hedging

the component procurement problem for the loss averse manufacturer with spot purchase abstract this paper studies the purchasing behaviour of a loss averse engineer to order manufacturer who purchases a key component for his final product from a supplier under a single wholesale price contract with spot purchase opportunities where both the product demand and the component spot price are uncertain through newsvendor type of models we analyze several key issues including the effects of the manufacturer s loss aversion and the effects of demand and spot price uncertainties on the manufacturer s decision behaviour we find that the purchasing behaviour of the loss averse manufacturer differs from those of the risk neutral and risk averse ones specifically we identify some sufficient conditions under which the loss averse manufacturer may purchase a larger order quantity in advance when demand becomes more uncertain or when the price becomes more uncertain we also discuss the two wholesale price contract and show that fixing the emergency supply price may lead to a smaller order quantity

the newsvendor problem review and directions for future research in this paper we review the contributions to date for analyzing the newsvendor problem our focus is on examining the specific extensions for analyzing this problem in the context of modeling customer demand supplier costs and the buyer risk profile more specifically we analyze the impact of market price marketing effort and stocking quantity on customer demand how supplier prices can serve as a coordination mechanism in a supply chain setting integrating alternative supplier pricing policies within the newsvendor framework and how the buyer s risk profile moderates the newsvendor order quantity decision for each of these areas we summarize the current literature and develop extensions finally we also propose directions for future research

newsvendor model with random supply and financial hedging utility based approach abstract this paper takes a utility based approach to the single period and single item newsvendor model unlike most models in the literature the newsvendor is not necessarily risk neutral and chooses the order quantity that maximizes the expected utility of the cash flow at the end of the period we suppose that there is uncertainty in demand as well as supply furthermore random demand and supply may be correlated with the financial markets the newsvendor exploits this correlation and manages his risks by investing in a portfolio of financial instruments the decision problem therefore includes not only the determination of the optimal ordering policy but also the selection of the optimal portfolio at the same time we first use a minimum variance approach to select the portfolio the analysis results in some interesting and explicit characterizations on the structure of the optimal policy we also present numerical examples to illustrate the effects of the parameters on the optimal order quantity and the importance of financial hedging on risk reduction

a multi product risk averse newsvendor with exponential utility function 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

multi product newsvendor problem with value at risk considerations abstract we consider the single period stochastic inventory newsvendor problem with downside risk constraints the aim in the classical newsvendor problem is maximizing the expected profit this formulation does not take into account the risk of earning less than a desired target profit or losing more than an acceptable level due to the randomness of demand we utilize value at risk var as the risk measure in a newsvendor framework and investigate the multi product newsvendor problem under a var constraint to this end we first derive the exact distribution function for the two product newsvendor problem and develop an approximation method for the profit distribution of the n product case n 2 a mathematical programming approach is used to determine the solution of the newsvendor problem with a var constraint this approach allows us to handle a wide range of cases including the correlated demand case that yields new results and insights the accuracy of the approximation method and the effects of the system parameters on the solution are investigated numerically

operational flexibility and financial hedging complements or substitutes we consider a firm that invests in capacity under demand uncertainty and thus faces two related but distinct types of risk mismatch between capacity and demand and profit variability whereas mismatch risk can be mitigated with greater operational flexibility profit variability can be reduced through financial hedging we show that the relationship between these two risk mitigating strategies depends on the type of flexibility product flexibility and financial hedging tend to be complements substitutes i e product flexibility tends to increase decrease the value of financial hedging and vice versa financial hedging tends to increase decrease the value of product flexibility when product demands are positively negatively correlated in contrast to product flexibility postponement flexibility is a substitute to financial hedging as intuitively expected although our analytical results assume perfect flexibility and perfect hedging and rely on a linear approximation of the value of hedging we validate their robustness in an extensive numerical study

risk sensitive dynamic market share attraction games we present partial results showing that risk sensitive oligopolists would spend less on advertising than would their risk neutral counterparts the model is an infinite horizon stochastic game in which each firm s goodwill is a random function of both its own and its competitors current and past advertising expenditures single period firm profits have a market share attraction form each firm seeks to maximize its expected exponential utility of the sum of discounted profits we analyze the impact that risk sensitivity and other parameters have on equilibrium advertising strategies by exploiting the special structure of the stochastic game model journal of economic literatureclassification number c73

optimal market making with risk aversion market makers have the obligation to trade any given amount of assets at quoted bid or ask prices and their inventories are exposed to the potential loss when the market price moves in an undesirable direction one approach to reduce the risk brought by price uncertainty is to adjust the inventory at the price of losing potential spread gain using stochastic dynamic programming we show that a threshold inventory control policy is optimal with respect to an exponential utility criterion and a mean variance trade off model symmetric and monotone properties of the threshold levels are also established