Financial management in inventory problems: Risk averse vs risk neutral policies

2009 ◽  
Vol 118 (1) ◽  
pp. 233-242 ◽  
Author(s):  
E. Borgonovo ◽  
L. Peccati
Keyword(s):  
Financial Management ◽  
Risk Averse ◽  
Risk Neutral

scholarly journals OPTIMAL OUTCOME SHARING WITH A CONSORTIUM OF CONTRACTORS

2015 ◽  
Vol 22 (5) ◽  
pp. 655-665 ◽  
Author(s):  
S. Mahdi HOSSEINIAN ◽  
David G. CARMICHAEL
Keyword(s):  
Risk Aversion ◽  
Risk Attitude ◽  
Risk Averse ◽  
Optimal Outcome ◽  
Original Solution ◽  
Project Outcome ◽  
Risk Neutral ◽  
Current Practices

Where a consortium of contractors is involved, there exist no guidelines in the literature on what the outcome sharing arrangement should be. The paper addresses this shortfall. It derives the optimal outcome sharing arrangement for risk-neutral and risk-averse contractors within the consortium, and between the consortium and a risk-neutral owner. Practitioners were engaged in a designed exercise in order to validate the paper’s propositions. The paper demonstrates that, at the optimum: the proportion of outcome sharing among contractors with the same risk-attitude should reflect the levels of their contributions; the proportion of outcome sharing among contractors with the same level of contribu­tion should be lower for contractors with higher levels of risk aversion; a consortium of risk-neutral contractors should receive or bear any favourable or adverse project outcome respectively; and the proportion of outcome sharing to a con­sortium of risk-averse contractors should reduce, and the fixed component of the consortium fee should increase, when the contractors become more risk-averse or the level of the project outcome uncertainty increases. The paper proposes an original solution to the optimal sharing problem in contracts with a consortium of contractors, thereby contributing to current practices in contracts management.

The stochastic Mitra–Wan forestry model: risk neutral and risk averse cases

2014 ◽  
Vol 115 (2) ◽  
pp. 175-194 ◽  
Author(s):  
Adriana Piazza ◽  
Bernardo K. Pagnoncelli
Keyword(s):  
Risk Averse ◽  
Model Risk ◽  
Risk Neutral

Cutoff Threshold Decisions for Classification Algorithms with Risk Aversion

2021 ◽  
Author(s):  
Andrea C. Hupman
Keyword(s):  
Risk Aversion ◽  
Risk Attitude ◽  
Classification Algorithm ◽  
Classification Algorithms ◽  
Risk Averse ◽  
Optimal Cutoff ◽  
Data Set ◽  
Risk Neutral ◽  
Bayes Algorithm ◽  
Cutoff Threshold

Classification algorithms predict the class membership of an unknown record. Methods such as logistic regression or the naïve Bayes algorithm produce a score related to the likelihood that a record belongs to a particular class. A cutoff threshold is then defined to delineate the prediction of one class over another. This paper derives analytic results for the selection of an optimal cutoff threshold for a classification algorithm that is used to inform a two-action decision in the cases of risk aversion and risk neutrality. The results provide insight to how the optimal cutoff thresholds relate to the associated costs and the sensitivity and specificity of the algorithm for both the risk neutral and risk averse decision makers. The optimal risk averse threshold is not reliably above or below the optimal risk neutral threshold, but the relation depends on the parameters of a particular application. The results further show the risk averse optimal threshold is insensitive to the size of the data set or the magnitude of the costs, but instead is sensitive to the proportion of positive records in the data and the ratio of costs. Numeric examples and sensitivity analysis derive further insight. Results show the percent value gap from a misspecified risk attitude increases as the specificity of the classification algorithm decreases.

A Model of Multistage Risk-Averse Stochastic Optimization and its Solution by Scenario-Based Decomposition Algorithms

2020 ◽  
Vol 37 (04) ◽  
pp. 2040004
Author(s):  
Min Zhang ◽  
Liangshao Hou ◽  
Jie Sun ◽  
Ailing Yan
Keyword(s):  
Stochastic Optimization ◽  
Financial Management ◽  
Mean Deviation ◽  
Decomposition Algorithms ◽  
Risk Averse ◽  
Stochastic Variational Inequalities ◽  
Business Operations ◽  
Convergence Results ◽  
Progressive Hedging ◽  
Progressive Hedging Algorithm

Stochastic optimization models based on risk-averse measures are of essential importance in financial management and business operations. This paper studies new algorithms for a popular class of these models, namely, the mean-deviation models in multistage decision making under uncertainty. It is argued that these types of problems enjoy a scenario-decomposable structure, which could be utilized in an efficient progressive hedging procedure. In case that linkage constraints arise in reformulations of the original problem, a Lagrange progressive hedging algorithm could be utilized to solve the reformulated problem. Convergence results of the algorithms are obtained based on the recent development of the Lagrangian form of stochastic variational inequalities. Numerical results are provided to show the effectiveness of the proposed algorithms.

Risk neutral and risk averse Stochastic Dual Dynamic Programming method

2013 ◽  
Vol 224 (2) ◽  
pp. 375-391 ◽  
Author(s):  
Alexander Shapiro ◽  
Wajdi Tekaya ◽  
Joari Paulo da Costa ◽  
Murilo Pereira Soares
Keyword(s):  
Dynamic Programming ◽  
Programming Method ◽  
Dynamic Programming Method ◽  
Risk Averse ◽  
Stochastic Dual Dynamic Programming ◽  
Risk Neutral ◽  
Dual Dynamic Programming

scholarly journals Optimal Risk Budgeting under a Finite Investment Horizon

Risks ◽  
2019 ◽  
Vol 7 (3) ◽  
pp. 86
Author(s):  
Marcos López de Prado ◽  
Ralph Vince ◽  
Qiji Jim Zhu
Keyword(s):  
Quantitative Methods ◽  
Optimal Portfolio ◽  
Investment Horizon ◽  
Risk Averse ◽  
Growth Optimal Portfolio ◽  
Risk Budgeting ◽  
Risk Parity ◽  
Risk Neutral ◽  
Mean Variance

The Growth-Optimal Portfolio (GOP) theory determines the path of bet sizes that maximize long-term wealth. This multi-horizon goal makes it more appealing among practitioners than myopic approaches, like Markowitz’s mean-variance or risk parity. The GOP literature typically considers risk-neutral investors with an infinite investment horizon. In this paper, we compute the optimal bet sizes in the more realistic setting of risk-averse investors with finite investment horizons. We find that, under this more realistic setting, the optimal bet sizes are considerably smaller than previously suggested by the GOP literature. We also develop quantitative methods for determining the risk-adjusted growth allocations (or risk budgeting) for a given finite investment horizon.

scholarly journals User Equilibrium Analysis Considering Travelers’ Context-Dependent Route Choice Behavior on the Risky Traffic Network

2020 ◽  
Vol 12 (17) ◽  
pp. 6706
Author(s):  
Qinghui Xu ◽  
Xiangfeng Ji
Keyword(s):  
High Probability ◽  
Choice Behavior ◽  
Route Choice ◽  
User Equilibrium ◽  
Equilibrium Analysis ◽  
Risk Averse ◽  
Risk Seeking ◽  
Route Choice Behavior ◽  
Risk Neutral ◽  
Context Dependent

This paper studies travelers’ context-dependent route choice behavior in a risky trafficnetwork from a long-term perspective, focusing on the effect of travelers’ salience characteristics. In particular, a flow-dependent salience theory is proposed for this analysis, where the flow denotes the traffic flow on the risky route. In the proposed model, travelers’ attention is drawn to the salient travel utility, and the objective probabilities of the state of the world are replaced by the decision weights distorted in favor of this salient travel utility. A long-run user equilibrium will be achieved when no traveler can improve his or her salient travel utility by unilaterally changing routes, termed salient user equilibrium, which extends the scope of the Wardropian user equilibrium. Furthermore, we prove the existence and uniqueness of this salient user equilibrium. Finally, numerical studies demonstrate our theoretical findings. The equilibrium results show non-intuitive insights into travelers’ route choice behavior. (1) Travelers can be risk-seeking (the travel utility of a risky route is small with a relatively high probability), risk-neutral (in special situations), or risk-averse (the travel utility of a risky route is large with a relatively high probability), which depends on the salient state. (2) The extent of travelers’ risk-seeking or risk-averse behavior depends on their extent of salience bias, while the risk-neutral behavior is irrelative to this salience bias.

scholarly journals Choices in the 11–20 Game: The Role of Risk Aversion

Games ◽  
2018 ◽  
Vol 9 (3) ◽  
pp. 53
Author(s):  
King Li ◽  
Kang Rong
Keyword(s):  
Nash Equilibrium ◽  
Risk Aversion ◽  
Risk Averse ◽  
Lab Experiment ◽  
Risk Neutral ◽  
Beauty Contest ◽  
Game Players

Arad and Rubinstein (2012, AER) proposed the 11–20 money request game as an alternative to the P beauty contest game for measuring the depth of thinking. In this paper, we show theoretically that in the Nash equilibrium of the 11–20 game players are more likely to choose high numbers if they are risk-averse rather than risk neutral. Hence, the depth of thinking measured in the 11–20 game is biased by risk aversion. Based on a lab experiment, we confirm this hypothesis empirically.

scholarly journals Risk-Averse Newsvendor Model with Strategic Consumer Behavior

2013 ◽  
Vol 2013 ◽  
pp. 1-12 ◽  
Author(s):  
Tie Wang ◽  
Qiying Hu
Keyword(s):  
Rational Expectation ◽  
General Setting ◽  
Equilibrium Price ◽  
Equilibrium Analysis ◽  
Specific Situation ◽  
Risk Averse ◽  
Sale Price ◽  
Hunting Behavior ◽  
Risk Neutral ◽  
General Power

The classic newsvendor problem focuses on maximizing the expected profit or minimizing the expected cost when the newsvendor faces myopic customers. However, it ignores the customer’s bargain-hunting behavior and risk preference measure of the newsvendor. As a result, we carry out the rational expectation (RE) equilibrium analysis for risk-averse newsvendor facing forward-looking customers who anticipate future sales and choose purchasing timing to maximize their expected surplus. We propose the equations satisfied by the RE equilibrium price and quantity for the risk-averse retailer in general setting and the explicit equilibrium decisions for the case where demand follows the uniform distribution and utility is a general power function. We identify the impacts of the system parameters on the RE equilibrium for this specific situation. In particular, we show that the RE equilibrium price for some risk-averse newsvendors is lower than for a risk-neutral retailer and the RE equilibrium stocking quantity for some risk-averse newsvendors is higher than for a risk-neutral retailer. We also find that the RE equilibrium sale price for a risk-averse newsvendor is decreasing in salvage price in some situations.

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