OPTIMAL ORDERING POLICIES WITH STOCHASTIC DEMAND AND PRICE PROCESSES

Kimitoshi Sato () and Katsushige Sawaki ()
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Kimitoshi Sato: Graduate School of Finance, Accounting and Law, Waseda University, 1-4-1, Nihombashi, Chuo-ku, Tokyo 103-0027, Japan
Katsushige Sawaki: Graduate School of Business Administration, Nanzan University, 18 Yamazato-cho, Showa-ku, Nagoya 466-8673, Japan

Asia-Pacific Journal of Operational Research (APJOR), 2012, vol. 29, issue 06, 1-21

Abstract: In this paper, we consider an inventory model in which a firm uses the spot market for procurement in order to accomplish the minimization of total discounted costs. The model can be formulated as impulse control problem where the demand and spot price follow diffusion stochastic processes. We explore sufficient conditions under which an optimal policy exists. Furthermore, we derive an optimal policy as an (s, S) policy where s and S are uniquely determined as a solution of simultaneous equation. Finally, we show some analytical properties of the optimal policy. Some numerical examples are also presented.

Keywords: Inventory control; quasi-variational inequalities; commodity market (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:wsi:apjorx:v:29:y:2012:i:06:n:s0217595912500376

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DOI: 10.1142/S0217595912500376

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