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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 modelled 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.
Analysing 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 with decision rules which 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
(297 kb) |
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| Reference |
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BibTeX,
Plain Text |
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