Value-At-Risk Optimal Policies for Revenue Management Problems

Matthias Koenig, Joern Meissner

Abstract Consider a single-leg dynamic revenue management problem with fare classes controlled by capacity in a risk-averse setting. The revenue management strategy aims at limiting the down-side risk, and in particular, value-at-risk. A value-at-risk optimised policy o ers an advantage when considering applications which do not allow for a large number of reiterations. They allow for specifying a confidence level regarding undesired scenarios.

We introduce a computational method for determining policies which optimises the value-at-risk for a given confidence level. This is achieved by computing dynamic programming solutions for a set of target revenue values and combining the solutions in order to attain the requested multi-stage risk-averse policy. We reduce the state space used in the dynamic programming in order to provide a solution which is feasible and has less computational requirements. Numerical examples and comparison with other risk-sensitive approaches are discussed.

Capacity Control, Revenue Management, Risk, Value-at-Risk

Status Working Paper
(350 kb)
Reference BibTeX, Plain Text
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