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Matthias Koenig, Joern Meissner
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| Abstract |
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Consider a dynamic decision making model under risk with a fixed planning horizon,
namely the dynamic capacity control model. The model describes a firm, operating in
a monopolistic setting and selling a range of products consuming a single resource.
Demand for each product is time-dependent and modeled by a random variable. The
firm controls the revenue stream by allowing or denying customer requests for product
classes. We investigate risk-sensitive policies in this setting, for which risk concerns are
important for many non-repetitive events and short-time considerations.
Analyzing several numerically risk-averse capacity control policies in terms of standard
deviation and conditional-value-at-risk, our results show that only a slight modification
of the risk-neutral solution is needed to apply a risk-averse policy. In particular,
risk-averse policies which decision rules are functions depending only on the marginal
values of the risk-neutral policy perform well. The risk sensitivity of a policy only depends
on the current state but it does not matter whether risk-neutral or risk-averse
decisions led to the state. From a practical perspective, the advantage is that a decision
maker does not need to compute any risk-averse dynamic program. Risk sensitivity
can be easily achieved by implementing risk-averse functional decision rules based on
a risk-neutral solution. |
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| Keywords |
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Dynamic Decisions, Capacity Control, Revenue Management, Risk.
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| Status |
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Working Paper |
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| Download |
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www.meiss.com/download/RM-Koenig-Meissner-02.pdf
(222 kb) |
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| Reference |
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BibTeX,
Plain Text |
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