Stochastic production planning with regime switching | Zendy

Dragoş-Pătru Covei | Zendy; Elena Cristina Canepa | Zendy; Traian A. Pirvu | Zendy

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Stochastic production planning with regime switching

Author(s) -

Dragoş-Pătru Covei,

Elena Cristina Canepa,

Traian A. Pirvu

Publication year - 2022

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.2022013

Subject(s) - production (economics) , intuition , production planning , sensitivity (control systems) , computer science , mathematical optimization , partial differential equation , mathematical economics , mathematics , economics , microeconomics , mathematical analysis , engineering , philosophy , epistemology , electronic engineering

This paper considers a stochastic production planning problem with regime switching. There are two regimes corresponding to different economic cycles. A factory is planning its production so as to minimize production costs. We analyze this problem and the optimal production is characterized through an elliptic system of partial differential equations which can be numerically solved. We perform a sensitivity analysis for which we provide an intuition. A model risk analysis reveals the effect of adding regime switching to the modelling.

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