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Real options valuation principle in the multi-period base-stock problem

In English

Författare

Summary, in English

This paper analyzes the multi-period base-stock problem where there is a financial risk associated with a stochastic demand. For the single-period problem, it is known that the optimal inventory policy can be obtained with the Black and Scholes option pricing formula. This paper pushes the analysis further by applying the options valuation framework to the multi-period problem and presenting an algorithm for finding the optimal inventory policy. A computational study indicates that the effect of systematic risk is typically negligible (as for the single-period problem). Therefore, it can be concluded that systematic risk in demand is of little importance for optimal inventory control.

Avdelning/ar

Publiceringsår

2008

Språk

Engelska

Sidor

1086-1095

Publikation/Tidskrift/Serie

Omega: the International Journal of Management Science

Volym

36

Issue

6

Dokumenttyp

Artikel i tidskrift

Förlag

Elsevier

Ämne

  • Transport Systems and Logistics

Nyckelord

  • cost benefit analysis newsboy problem
  • inventory theory
  • risk

Status

Published

ISBN/ISSN/Övrigt

  • ISSN: 0305-0483