A real option approach to optimal inventory management of retail products | Zendy

Ximin Huang | Zendy; Na Song | Zendy; Wai-Ki Ching | Zendy; Tak Kuen Siu | Zendy; Ka Fai Cedric Yiu | Zendy

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A real option approach to optimal inventory management of retail products

Author(s) -

Ximin Huang,

Na Song,

Wai-Ki Ching,

Tak Kuen Siu,

Ka Fai Cedric Yiu

Publication year - 2012

Publication title -

journal of industrial and management optimization

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.325

H-Index - 32

eISSN - 1553-166X

pISSN - 1547-5816

DOI - 10.3934/jimo.2012.8.379

Subject(s) - stochastic game , computer science , profit (economics) , inventory management , product (mathematics) , mathematical optimization , operations research , microeconomics , operations management , economics , mathematics , geometry

This paper introduces a novel approach to discuss an optimal inventory level of a retail product using a real option framework. We consider stochastic models for the evolution of the demand and unit price of the product over time. The profit structure of the retailer is represented by the payoff of the real option. An actuarial approach is then used to price the option. The retailer determines an optimal inventory level of the product with a view to maximizing the net expected profit. Numerical examples will be given to illustrate the practical implementation of the proposed approach and to investigate the impacts of changes in parameters on the optimal inventory level of the product.11 page(s

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