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UID:59@web.iem.technion.ac.il
DTSTART;TZID=Asia/Jerusalem:20210224T143000
DTEND;TZID=Asia/Jerusalem:20210224T153000
DTSTAMP:20210221T123120Z
URL:https://web.iem.technion.ac.il/site/iemevents/expansion-and-generaliza
tion-of-the-literature-on-the-risk-averse-newsvendor-problem-by-integratin
g-finance-results-with-the-risk-averse-newsvendor-problem/
SUMMARY:Expansion and generalization of the literature on the risk averse n
ewsvendor problem by integrating finance results with the risk-averse news
vendor problem [ \n Graduate Student Seminar\n Seminars\n \n ]
DESCRIPTION:By: M.Sc Gad Gal (Gadi) Ezer\n Advisors: Professor Yale T. Here
r \n Where: ZOOM From:\nTechnion\nAbstract:\nGlobalization and e-commerce
have led to increased levels of competition and steadily shorter product
life cycles. The newsvendor (NV) model is classically used for inventory m
anagement of short life-cycle product. It contends with demand uncertainty
that leads to uncertain performances\, as a result risk emerges under whi
ch decision are made. While decision makers tend to avoid risk for high pr
ofit products (e.g.\, new products)\, the traditional solution of the NV p
roblem ignores the underlying risk. Mean-variance (MV) analysis is a funda
mental theory of risk management in finance.MV analysis is notable for bei
ng implementable and providing good recommendations even without knowing t
he utility function. Inspired by the Modern Portfolio Theory (MPT) we inve
stigate the set of efficient solutions (i.e.\, efficient frontier) of the
NV problem\, using the MV analysis methodology with a modification to avoi
d its pitfall.\nWe focus on the special case of uniformly distributed dema
nd where identical locations are independent such that their decisions do
not affect their demands. While MPT uses diversification to create an effi
cient frontier\, we show that the efficient frontier of the NV problem exi
sts also for a single location. Defining a combination of multiple locatio
ns’ strategies as a portfolio\, we show that the efficient frontier of t
he multilocation NV problem\, includes only efficient strategies of the in
dividual problems. Moreover\, when the efficient frontier of the individua
l problems is convex\, a portfolio is efficient if and only if it includes
identical efficient strategies of the individual problems.\nMature produc
ts’ demands are often stabilized such that their profit fluctuation is n
egligible and so we consider location’s choice to solely sell it\, as a
risk-free strategy. New products have a higher expected profit\, but conta
in uncertainty in their demand. MPT showed that the set of all combination
s of fractions between a risk-free strategy and a specific efficient portf
olio (i.e.\, the market portfolio)\, results in superior efficient frontie
r. Capital Asset Pricing Model (CAPM) set a criterion to make decision abo
ut adding products to an existing efficient portfolio. While both MPT and
CAPM focus is adding products to an existing efficient portfolio\, we inve
stigate the effect of replacing locations’ strategies with risk-free str
ategies—within an existing portfolio. We demonstrate that we can gain la
rge reduction in risk by sacrificing only a small amount of the expected p
rofit.\n\nZOOM LINK\n\nhttps://technion.zoom.us/j/3800541616
CATEGORIES:Graduate Student Seminar,Seminars
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