Separation results for multi-product inventory hedging problems
- 225 Downloads
We analyze financial hedging tools for inventory management in a risk-averse corporation. We consider the problem of optimizing simultaneously over both the operational policy and the hedging policy of the corporation in a multi-product model. Our main contribution is a separation result such that for a corporation with multiple products and inventory departments, the inventory decisions of each department can be made independently of the other departments’ decisions. That is, no interaction needs to be considered among different products.
KeywordsInventory hedging Multi-product separation Mean-variance hedging Incomplete market
We would like to thank the two anonymous referees and the editor for their constructive criticism and many suggestions that improved the paper.
- Föllmer, H., & Schweizer, M. (1991). Hedging of contingent claims under incomplete information. In M. H. A. Davis & R. J. Elliott (Eds.), Applied stochastic analysis, stochastics monographs (Vol. 5, pp. 389–414). London: Gordon and Breach. Google Scholar
- Sun, Y. (2011). Price manipulation with dark pools and multi-product separation in inventory hedging. Ph.D. dissertation, Cornell University. Google Scholar
- Sun, Y., Wissel, J., & Jackson, P. L. (2011). Multi-product separation result for inventory management under inflation risk. ORIE technical report #1480, Cornell University. http://hdl.handle.net/1813/23357.