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Newsvendor Problems with VaR and CVaR Consideration

In: Handbook of Newsvendor Problems

Author

Listed:
  • Werner Jammernegg

    (WU Vienna University of Economics and Business)

  • Peter Kischka

    (Friedrich Schiller University Jena)

Abstract

In this chapter, we consider approaches to express the risk preferences of a newsvendor by means of the risk measures value at risk (VaR), conditional value at risk (CVaR), and the mean-CVaR rule, which usually is defined as a convex combination of expected profit and CVaR. With these risk measures the decision maker can exploit risk-averse or risk-neutral behavior. In addition, we introduce a more general mean-CVaR measure where also risk- taking behavior can be expressed. The overall goal of the paper is a comparative analysis of these risk measures in the newsvendor framework. On the one hand VaR, CVaR and the (general) mean-CVaR, measures are used as objective functions to derive the respective optimal order quantity. Extensions of the basic models are reviewed. On the other hand the risk measures, especially VaR, are constraints of the model. We first review models with the expected profit as objective. Then the general mean-CVaR measure is taken as objective function and a service constraint and a loss constraint are added. In this framework, the risk attitudes of the newsvendor can be deduced from the characteristics of a product together with the specified service target and loss target.

Suggested Citation

  • Werner Jammernegg & Peter Kischka, 2012. "Newsvendor Problems with VaR and CVaR Consideration," International Series in Operations Research & Management Science, in: Tsan-Ming Choi (ed.), Handbook of Newsvendor Problems, edition 127, chapter 0, pages 197-216, Springer.
    • Handle: RePEc:spr:isochp:978-1-4614-3600-3_8
    DOI: 10.1007/978-1-4614-3600-3_8
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    Citations

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    Cited by:

    1. Wu, Meng & Zhu, Stuart X. & Teunter, Ruud H., 2014. "A risk-averse competitive newsvendor problem under the CVaR criterion," International Journal of Production Economics, Elsevier, vol. 156(C), pages 13-23.
    2. Bai, Tian & Wu, Meng & Zhu, Stuart X., 2019. "Pricing and ordering by a loss averse newsvendor with reference dependence," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 131(C), pages 343-365.
    3. Li, Yanhai & Gu, Chaocheng & Ou, Jinwen, 2020. "Supporting a financially constrained supplier under spectral risk measures: The efficiency of buyer lending," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 136(C).
    4. Jammernegg, Werner & Kischka, Peter & Silbermayr, Lena, 2024. "Risk preferences, newsvendor orders and supply chain coordination using the Mean-CVaR model," International Journal of Production Economics, Elsevier, vol. 270(C).
    5. Wu, Meng & Zhu, Stuart X. & Teunter, Ruud H., 2013. "The risk-averse newsvendor problem with random capacity," European Journal of Operational Research, Elsevier, vol. 231(2), pages 328-336.
    6. He, Juan & Ma, Chao & Pan, Kai, 2017. "Capacity investment in supply chain with risk averse supplier under risk diversification contract," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 106(C), pages 255-275.
    7. Raza, Syed Asif, 2018. "Supply chain coordination under a revenue-sharing contract with corporate social responsibility and partial demand information," International Journal of Production Economics, Elsevier, vol. 205(C), pages 1-14.
    8. Qiu, Ruozhen & Shang, Jennifer & Huang, Xiaoyuan, 2014. "Robust inventory decision under distribution uncertainty: A CVaR-based optimization approach," International Journal of Production Economics, Elsevier, vol. 153(C), pages 13-23.
    9. Jammernegg, Werner & Kischka, Peter, 2013. "The price-setting newsvendor with service and loss constraints," Omega, Elsevier, vol. 41(2), pages 326-335.
    10. Tsan-Ming Choi, 2016. "Multi-period risk minimization purchasing models for fashion products with interest rate, budget, and profit target considerations," Annals of Operations Research, Springer, vol. 237(1), pages 77-98, February.
    11. Avinadav, Tal & Chernonog, Tatyana & Ben-Zvi, Tal, 2019. "The effect of information superiority on a supply chain of virtual products," International Journal of Production Economics, Elsevier, vol. 216(C), pages 384-397.
    12. Jammernegg, Werner & Kischka, Peter & Silbermayr, Lena, 2022. "Heterogeneity, asymmetry and applicability of behavioral newsvendor models," European Journal of Operational Research, Elsevier, vol. 301(2), pages 638-646.
    13. Wu, Meng & Zhu, Stuart X. & Teunter, Ruud H., 2013. "Newsvendor problem with random shortage cost under a risk criterion," International Journal of Production Economics, Elsevier, vol. 145(2), pages 790-798.
    14. Tsan-Ming Choi, 2016. "Multi-period risk minimization purchasing models for fashion products with interest rate, budget, and profit target considerations," Annals of Operations Research, Springer, vol. 237(1), pages 77-98, February.
    15. Chaolin Yang & Zhenyu Hu & Sean X. Zhou, 2021. "Multilocation Newsvendor Problem: Centralization and Inventory Pooling," Management Science, INFORMS, vol. 67(1), pages 185-200, January.
    16. Chun-Hung Chiu & Tsan-Ming Choi, 2016. "Supply chain risk analysis with mean-variance models: a technical review," Annals of Operations Research, Springer, vol. 240(2), pages 489-507, May.

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