


Matthias Koenig, Joern Meissner


Abstract 

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 timedependent
and modeled by a random variable. The firm controls the revenue stream by
allowing or denying customer requests for product classes. We investigate
risksensitive policies in this setting, for which risk concerns are important
for many nonrepetitive events and shorttime considerations.
Numerically analyzing several riskaverse capacity control policies in
terms of standard deviation and conditionalvalueatrisk, our results show
that only a slight modification of the riskneutral solution is needed to
apply a riskaverse policy. In particular, riskaverse policies which decision
rules are functions depending only on the marginal values of the riskneutral
policy perform well. From a practical perspective, the advantage
is that a decision maker does not need to compute any riskaverse dynamic
program. Risk sensitivity can be easily achieved by implementing
riskaverse functional decision rules based on a riskneutral solution. 

Keywords 

Dynamic Decisions, Capacity Control, Revenue Management, Risk


Status 

Working Paper 

Download 

www.meiss.com/download/RMKoenigMeissner02.pdf (585 kb) 

Reference 

BibTeX,
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