Newsvendor Problems with VaR and CVaR Consideration

Werner Jammernegg () and Peter Kischka ()
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Werner Jammernegg: WU Vienna University of Economics and Business
Peter Kischka: Friedrich Schiller University Jena

Chapter Chapter 8 in Handbook of Newsvendor Problems, 2012, pp 197-216 from Springer

Abstract: Abstract In this chapter, we consider approaches to express the risk preferences of a newsvendor by means of the risk measures value at risk (VaR), conditional value at risk (CVaR), and the mean-CVaR rule, which usually is defined as a convex combination of expected profit and CVaR. With these risk measures the decision maker can exploit risk-averse or risk-neutral behavior. In addition, we introduce a more general mean-CVaR measure where also risk- taking behavior can be expressed. The overall goal of the paper is a comparative analysis of these risk measures in the newsvendor framework. On the one hand VaR, CVaR and the (general) mean-CVaR, measures are used as objective functions to derive the respective optimal order quantity. Extensions of the basic models are reviewed. On the other hand the risk measures, especially VaR, are constraints of the model. We first review models with the expected profit as objective. Then the general mean-CVaR measure is taken as objective function and a service constraint and a loss constraint are added. In this framework, the risk attitudes of the newsvendor can be deduced from the characteristics of a product together with the specified service target and loss target.

Keywords: CVaR; VaR; Risk; Mean-CVaR measure; Convex combination; Service and loss constraints (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (17)

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DOI: 10.1007/978-1-4614-3600-3_8

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