Socially responsible merchant operations: Comparison of shutdown-averse CVaR and anticipated regret policies |
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Institution: | 1. Institute for Transport Planning and Systems, ETH Zürich, Switzerland;2. College of Business Administration, University of Illinois at Chicago, USA |
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Abstract: | Commodity and energy production assets are managed as real options on market uncertainties. Social impacts of plant shutdowns incentivize balancing asset value with shutdown probability. We propose new shutdown-averse policies based on the popular dynamic conditional value-at-risk (CVaR). We analytically and numerically compare these policies to known shutdown-averse policies based on anticipated regret (AR). Our findings support the use of AR over CVaR to embed shutdown-aversion and the consideration of hybrid policies that are asymptotically time-consistent but easily interpretable. |
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Keywords: | Commodity operations Social objectives Real options Irreversible decisions Anticipated regret Conditional value-at-risk |
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