Mathematical Methods of Operations Research

, Volume 65, Issue 3, pp 565–579 | Cite as

Risk-sensitive capacity control in revenue management

Original Article

Abstract

Both the static and the dynamic single-leg revenue management problem are studied from the perspective of a risk-averse decision maker. Structural results well-known from the risk-neutral case are extended to the risk-averse case on the basis of an exponential utility function. In particular, using the closure properties of log-convex functions, it is shown that an optimal booking policy can be characterized by protection levels, depending on the actual booking class and the remaining time. Moreover, monotonicity of the protection levels with respect to the booking class and the remaining time are proven.

Keywords

Markov decision processes Revenue management Exponential utility Risk-sensitivity Log-convex functions 

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Copyright information

© Springer-Verlag 2006

Authors and Affiliations

  1. 1.Institut für Wirtschaftstheorie und Operations ResearchUniversität KarlsruheKarlsruheGermany

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