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Newsvendor Problems with VaR and CVaR Consideration

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Handbook of Newsvendor Problems

Part of the book series: International Series in Operations Research & Management Science ((ISOR,volume 176))

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.

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Author information

Authors and Affiliations

  1. Department of Information Systems and Operations, WU Vienna University of Economics and Business, Nordbergstraße 15, A-1090, Vienna, Austria

    Werner Jammernegg

  2. Department of Business Statistics, Friedrich Schiller University Jena, Carl-Zeiß-Straße 3, 07743, Jena, Germany

    Peter Kischka

Authors
  1. Werner Jammernegg
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  2. Peter Kischka
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Corresponding author

Correspondence to Werner Jammernegg .

Editor information

Editors and Affiliations

  1. , Institute of Textiles and Clothing, The Hong Kong Polytechnic University, Hung Hom, Kowloon, Hong Kong SAR

    Tsan-Ming Choi

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Jammernegg, W., Kischka, P. (2012). Newsvendor Problems with VaR and CVaR Consideration. In: Choi, TM. (eds) Handbook of Newsvendor Problems. International Series in Operations Research & Management Science, vol 176. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-3600-3_8

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