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Risk Minimizing Strategies for Revenue Management Problems with Target Values

Matthias Koenig and Joern Meissner
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Matthias Koenig: Department of Management Science, Lancaster University Management School,

No MRG/0015, Working Papers from Department of Management Science, Lancaster University

Abstract: Consider a risk-averse decision maker in the setting of a single-leg dynamic revenue management problem with revenue controlled by limiting capacity for a fixed set of prices. Instead of focussing on maximizing the expected revenue, the decision maker has the main objective of minimizing the risk of failing to achieve a given target revenue. Interpreting the revenue management problem in the framework of finite Markov decision processes, we augment the state space of the risk-neutral problem definition and change the objective function to the probability of failing a certain specified target revenue. This enables us to obtain a dynamic programming solution which generates the policy minimizing the risk of not attaining this target revenue. We compare this solution with recently proposed risk-sensitive policies in a numerical study and discuss advantages and limitations.

Keywords: capacity control; revenue management; multi-period; risk; target level criterion (search for similar items in EconPapers)
JEL-codes: C61 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2009-11, Revised 2014-10
New Economics Papers: this item is included in nep-cmp
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Journal Article: Risk minimising strategies for revenue management problems with target values (2016) Downloads
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