 Optimal ordering quantity under stochastic time-dependent price and demand with a supply disruption: A solution based on the change of measure techniqueM. Zied Babai, Dmitry Ivanov and Oh Kang Kwon Omega, 2023, vol. 116, issue C Abstract: This paper presents a solution of a generalized newsvendor problem with supply disruption and dual sourcing, where the underlying product price and demand are correlated and evolve randomly over time. We contribute to the literature by employing a non-stationary model for demand, and proposing a novel solution methodology using the change of measure technique often applied for derivative pricing in the mathematical finance literature but not frequently considered in the management science and operations management literature. The application of this technique allows the non-linear expectation terms in the profit function, that are often computed numerically in the literature, to be determined analytically. This, in turn, leads to analytic solutions in special cases, and provides the foundations for a highly efficient numerical solution algorithm in general. A comparison against an alternative benchmark technique from the literature is provided to demonstrate the efficiency of our approach. Keywords: Newsvendor problem; Supply chain disruption; Dual sourcing; Change of measure technique; Non-stationary demand; Stochastic price (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jomega:v:116:y:2023:i:c:s0305048322002237 Ordering information: This journal article can be ordered from DOI: 10.1016/j.omega.2022.102817 Access Statistics for this article Omega is currently edited by B. Lev More articles in Omega from Elsevier |
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