The Effects of Financial Risks on Inventory Policy
Författare
Summary, in English
The effect of financial risks on (R, Q) inventory policies is analyzed in a real options framework. Simple adjustments of the usual formulas for R and Q are suggested and tested. Stochastic demand and purchase costs are considered, both with known systematic (business-cycle-related) risk. The systematic risk of stochastic demand has typically a negligible effect on the optimal values of R and Q, although an improvement may be achieved by a simple adjustment of R. The systematic risk of the purchase price, c, has a significant effect on R and Q. The capital holding cost should be estimated as r . c, where r is the sum of the risk-free interest rate, the expected price decrease, and the risk premium associated with the systematic risk of c. For goods quoted on commodity exchanges, r may be estimated directly from the prices on forward contracts. Its size (and sign) varies considerably for different commodities.
Avdelning/ar
Publiceringsår
2005
Språk
Engelska
Sidor
1804-1815
Publikation/Tidskrift/Serie
Management Science
Volym
51
Issue
12
Dokumenttyp
Artikel i tidskrift
Förlag
Informs
Ämne
- Transport Systems and Logistics
Nyckelord
- Inventory costing methods
- Capital costs
- Risk
- Inventory control
- Studies
- Real options analysis
- Stochastic models
Status
Published
ISBN/ISSN/Övrigt
- ISSN: 0025-1909