A benchmark solution for the risk-averse newsvendor problem

Baruch Keren; Joseph S. Pliskin

doi:10.1016/j.ejor.2005.03.047

A benchmark solution for the risk-averse newsvendor problem

Baruch Keren, Joseph S. Pliskin

Department of Industrial Engineering and Management

Research output: Contribution to journal › Article › peer-review

92 Scopus citations

Abstract

In this paper, we derive the first order conditions for optimality for the problem of a risk-averse expected-utility maximizer newsvendor. We use these conditions to solve a special case where the utility function is any increasing differentiable function, and the random demand is uniformly distributed. This special case has a simple closed form solution and therefore it provides an insightful and practical interpretation to the optimal point. We show some properties of the solution and also demonstrate how it can be used for assessing the newsvendor utility function parameters.

Original language	English
Pages (from-to)	1643-1650
Number of pages	8
Journal	European Journal of Operational Research
Volume	174
Issue number	3
DOIs	https://doi.org/10.1016/j.ejor.2005.03.047
State	Published - 1 Nov 2006

Keywords

Newsvendor problem
Risk-aversion
Uniform distribution
Utility theory

ASJC Scopus subject areas

General Computer Science
Modeling and Simulation
Management Science and Operations Research
Information Systems and Management

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10.1016/j.ejor.2005.03.047

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A benchmark solution for the risk-averse newsvendor problem

Abstract

Keywords

ASJC Scopus subject areas

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