Optimal Newsvendor IRM with Downside Risk

Paolo Guiotto and Andrea Roncoroni

Foundations and Trends(R) in Technology, Information and Operations Management, 2023, vol. 16, issue 3-4, 193-213

Abstract: We analyze the way behavioral preferences featuring downside risk aversion influence the optimal integrated risk management (IRM) of newsvendor revenues. Under the stylized assumption of perfectly correlated demand with financial hedge’s underlying, we show two remarkable facts. First, the simultaneous presence of a standard and a downside risk aversion blurs the relevance of an integrated approach to risk management under a conventional expected utility framework. Second, a generalized disappointment aversion utility represents an appropriate decision making setup for devising IRM strategies whose financial hedging component exhibits a relevant effect on the operational handling term.

Keywords: Supply Chain Management; Capacity Planning; Information Systems Development: Risk Management; Derivatives: Financial Engineering; Financial markets: Portfolio Theory (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:now:fnttom:0200000106-2

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