A benchmark solution for the risk-averse newsvendor problem |
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| Institution: | 1. Sami Shamoon College of Engineering, The Department of Industrial Engineering and Management, Ben-Gurion University of the Negev, Bialik/Basel Streets, P.O. Box 45, Beer Sheva 84100, Israel;2. Department of Industrial Engineering and Management, Ben-Gurion University of the Negev, Israel;1. Business School, University of Edinburgh, United Kingdom;2. Insight Centre for Data Analytics, University College Cork, Ireland;3. Institute of Population Studies, Hacettepe University, Turkey;4. Department of Computer Engineering, Izmir University of Economics, Turkey;1. College of Business and Administration, Zhejiang University of Technology, Hangzhou, Zhejiang 310023, China;2. Department of Mathematics and Information Science, Binzhou University, Binzhou 256603, China;3. Department of Industrial and Systems Engineering, The Hong Kong Polytechnic University, Hung Hom, Hong Kong |
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| Abstract: | In this paper, we derive the first order conditions for optimality for the problem of a risk-averse expected-utility maximizer newsvendor. We use these conditions to solve a special case where the utility function is any increasing differentiable function, and the random demand is uniformly distributed. This special case has a simple closed form solution and therefore it provides an insightful and practical interpretation to the optimal point. We show some properties of the solution and also demonstrate how it can be used for assessing the newsvendor utility function parameters. |
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