Integrated Production Planning and Risk Hedging

Liao Wang and David D. Yao

Foundations and Trends(R) in Technology, Information and Operations Management, 2017, vol. 11, issue 1-2, 89-106

Abstract: We study production planning integrated with risk hedging. In addition to using a one-time production quantity decision, made at the beginning of a planning horizon, as a way to manage demand uncertainty, we illustrate how to construct and execute a hedging strategy throughout the horizon, as a better and more effective approach to mitigating the risks involved. Furthermore, whereas traditional production planning models focus on the expected net-profit as an objective function, we study two risk measures, variance and shortfall. In both cases, we characterize the efficient frontier, and demonstrate the improved risk-return profile over a production-only decision.

Keywords: Operational risk management; Contingency planning; Commodity price risk; Supply chain disrutpions (search for similar items in EconPapers)
JEL-codes: G20 G32 M11 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:now:fnttom:0200000072

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