Real options valuation principle in the multi-period base-stock problem
(2008) In Omega: the International Journal of Management Science 36(6). p.1086-1095- Abstract
- 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.
Please use this url to cite or link to this publication:
https://lup.lub.lu.se/record/1205105
- author
- Berling, Peter LU
- organization
- publishing date
- 2008
- type
- Contribution to journal
- publication status
- published
- subject
- keywords
- cost benefit analysis newsboy problem, inventory theory, risk
- in
- Omega: the International Journal of Management Science
- volume
- 36
- issue
- 6
- pages
- 1086 - 1095
- publisher
- Elsevier
- external identifiers
-
- wos:000255311800015
- scopus:40649111645
- ISSN
- 0305-0483
- DOI
- 10.1016/j.omega.2006.05.007
- language
- English
- LU publication?
- yes
- id
- 20e961b9-f8de-4fad-8ba0-3f66ec0e2233 (old id 1205105)
- date added to LUP
- 2016-04-01 12:19:22
- date last changed
- 2023-01-03 06:53:42
@article{20e961b9-f8de-4fad-8ba0-3f66ec0e2233, abstract = {{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.}}, author = {{Berling, Peter}}, issn = {{0305-0483}}, keywords = {{cost benefit analysis newsboy problem; inventory theory; risk}}, language = {{eng}}, number = {{6}}, pages = {{1086--1095}}, publisher = {{Elsevier}}, series = {{Omega: the International Journal of Management Science}}, title = {{Real options valuation principle in the multi-period base-stock problem}}, url = {{http://dx.doi.org/10.1016/j.omega.2006.05.007}}, doi = {{10.1016/j.omega.2006.05.007}}, volume = {{36}}, year = {{2008}}, }