Value at risk and inventory control

Research output: Contribution to journalArticle

Abstract

The purposes of this paper are two-fold. On the one hand, we shall provide a decision analysis justification for the Value at Risk (VaR) approach based on ex-post, disappointment decision making arguments. We shall show that the VaR approach is justified by a disappointment criterion. In other words, the asymmetric valuation between ex-ante expected returns above an appropriate target return and the expected returns below that same target level, provide an explanation for the VaR criterion when it is used as a tool for VaR efficiency design. Second, this paper provides applications to inventory management based on VaR risk exposure. Although the mathematical problems arising from an application of the VaR approach, tuned to current practice in financial risk management, are difficult to solve analytically, solutions can be found by application of standard computational and simulation techniques. A number of cases are solved and formulated to demonstrate the paper's applicability.

Original languageEnglish (US)
Pages (from-to)769-775
Number of pages7
JournalEuropean Journal of Operational Research
Volume163
Issue number3
DOIs
StatePublished - Jun 16 2005

Fingerprint

Inventory control
Inventory Control
Value at Risk
Values
Design Efficiency
Financial Risk
Inventory Management
Decision Analysis
Target
Risk Management
Decision theory
Justification
Valuation
Risk control
Value at risk
Risk management
risk management
Fold
Decision Making
Decision making

Keywords

  • Inventory
  • Risk
  • VaR

ASJC Scopus subject areas

  • Information Systems and Management
  • Management Science and Operations Research
  • Statistics, Probability and Uncertainty
  • Applied Mathematics
  • Modeling and Simulation
  • Transportation

Cite this

Value at risk and inventory control. / Tapiero, Charles.

In: European Journal of Operational Research, Vol. 163, No. 3, 16.06.2005, p. 769-775.

Research output: Contribution to journalArticle

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