The optimal order decisions of a risk-averse newsvendor under backlogging

• DOI: 10.1007/s10479-020-03636-2
• Publication Date: 2020-05-21T08:03:42Z
• Authors: Jianghua Zhang; Felix T. S. Chan; Xinsheng Xu
• Keywords: Newsvendor model; CVAR; Theory of computation

In this paper, we are concerned with the optimal order quantities for a risk-averse newsvendor with backlogging, where it is assumed that all or part of the unsatisfied demands can be fullfilled by backordering. The optimal order quantities are derived under the famous conditional value-at-risk (CVaR) criterion and mean-CVaR criterion on controlling the profit loss due to the uncertainty of market demands. With the optimal order quantities to the proposed models, several important monotone properties are obtained and their relationships with the existing results are discussed. Moreover, it is shown in this paper that low risk means low expected profit while high expected profit comes with high risk. Finally, we present some managerial insights for the risk-averse newsvendor model under backlogging.