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A Risk-Averse Inventory Cost Model Using CVaR

  • Jasmine Jiamin LimEmail author
  • Allan N. Zhang
  • Yew Soon Ong
  • Puay Siew Tan
Part of the Proceedings in Adaptation, Learning and Optimization book series (PALO, volume 1)

Abstract

This paper studies the situation where a risk-averse manager, whose company produces goods catering to uncertain demand, has to decide on the quantity to be produced with the objective of minimizing his cost. Demand uncertainty is a major issue faced by many inventory managers, as overstocking or understocking, will result in the company incurring extra unwanted cost. To tackle this problem, an inventory cost model is proposed in this paper. The model is an extension of the newsvendor framework and is formulated as a minimization problem via conditional Value at Risk (CVaR). The solution to the model is presented and evaluated via a case study. Through this model, the optimal inventory level can be determined and this will serve to be useful for the risk-averse inventory manager.

Keywords

Newsvendor Risk-averse Supplier conditional Value at Risk (CVaR) Demand Uncertainty Inventory Cost Model 

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Copyright information

© Springer International Publishing Switzerland 2015

Authors and Affiliations

  • Jasmine Jiamin Lim
    • 1
    Email author
  • Allan N. Zhang
    • 1
  • Yew Soon Ong
    • 2
  • Puay Siew Tan
    • 1
  1. 1.Singapore Institute of Manufacturing TechnologySingaporeSingapore
  2. 2.Nanyang Technological UniversitySingaporeSingapore

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