A risk-averse newsvendor with law invariant coherent measures of risk

Authors:
Sungyong Choi;Andrzej RuszczyńSki
Affiliations:
Department of Management Science and Information Systems, Rutgers University, 94 Rockefeller Rd, Piscatway, NJ 08854, USA;Department of Management Science and Information Systems, Rutgers University, 94 Rockefeller Rd, Piscatway, NJ 08854, USA
Venue:
Operations Research Letters
Year:
2008

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Abstract

For general law invariant coherent measures of risk, we derive an equivalent representation of a risk-averse newsvendor problem as a mean-risk model. We prove that the higher the weight of the risk functional, the smaller the order quantity. Our theoretical results are confirmed by sample-based optimization.