 Coping with risk management and fill rate in the loss-averse newsvendor modelXinsheng Xu, Chi Kin Chan and Andre Langevin International Journal of Production Economics, 2018, vol. 195, issue C, 296-310 Abstract: In this paper, we introduce the CVaR (Conditional Value-at-Risk) measure to hedge against the risks for the loss-averse newsvendor. We derive the optimal order quantities for the loss-averse newsvendor to maximize the CVaR objective of utility with and without the shortage cost, respectively. It is shown that when shortage cost is not considered, an increase in the degree of loss aversion leads to a decrease in the fill rate. Therefore the newsvendor should strike a balance between the two conflicting targets in selecting the optimal order quantity. When the shortage cost is taken into account and sufficiently large, it is proved that an increase in the degree of loss aversion leads to an increase in the fill rate. To manage both of the two targets, the newsvendor should order more items in this case. Our sensitivity analysis further verifies that high risk implies high return and low risk comes with low return. Based on the analysis, some management insights for the risk management of the loss-averse newsvendor are presented. Keywords: Fill rate; Loss aversion; Newsvendor model; Conditional value-at-risk; Risk management (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:proeco:v:195:y:2018:i:c:p:296-310 DOI: 10.1016/j.ijpe.2017.10.024 Access Statistics for this article International Journal of Production Economics is currently edited by Stefan Minner More articles in International Journal of Production Economics from Elsevier |
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