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Time-consistent, risk-averse dynamic pricing

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  • Schur, Rouven
  • Gönsch, Jochen
  • Hassler, Michael

Abstract

Many industries use dynamic pricing on an operational level to maximize revenue from selling a fixed capacity over a finite horizon. Classical risk-neutral approaches do not accommodate the risk aversion often encountered in practice. When risk aversion is considered, time-consistency becomes an important issue. In this paper, we use a dynamic coherent risk-measure to ensure that decisions are actually implemented and only depend on states that may realize in the future. In particular, we use the risk measure Conditional Value-at-Risk (CVaR), which recently became popular in areas like finance, energy or supply chain management.

Suggested Citation

  • Schur, Rouven & Gönsch, Jochen & Hassler, Michael, 2019. "Time-consistent, risk-averse dynamic pricing," European Journal of Operational Research, Elsevier, vol. 277(2), pages 587-603.
    • Handle: RePEc:eee:ejores:v:277:y:2019:i:2:p:587-603
    DOI: 10.1016/j.ejor.2019.02.038
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