A market-based martingale valuation approach to optimum inventory control in a doubly stochastic jump-diffusion economy
We propose a novel market-based approach to optimum inventory control in a doubly stochastic jump-diffusion economy by modelling a commodity distributor’s inventory investment as a portfolio of forward commitments with explicit accounting of the jump-diffusion dynamics of demands, costs, and prices in open markets. We apply the robust real-asset martingale valuation methodology to derive a closed-form solution for the inventory value and a simple and intuitive optimality condition. Numerical analysis verifies this condition and demonstrates that the resulting optimum policy has robust properties in relation to the stylized effects.
Year of publication: |
2015
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Authors: | Chang, Jack SK ; Chang, Carolyn ; Shi, Min |
Published in: |
Journal of the Operational Research Society. - Palgrave Macmillan, ISSN 0160-5682. - Vol. 66.2015, 3, p. 405-420
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Publisher: |
Palgrave Macmillan |
Saved in:
Online Resource
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