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Time inconsistency of optimal policies of distributionally robust inventory models

Alexander Shapiro(ashapiro***at***isye.gatech.edu)
Linwei Xin(linwei.xin***at***chicagobooth.edu)

Abstract: In this paper, we investigate optimal policies of distributionally robust (risk averse) inventory models. We demonstrate that if the respective risk measures are not strictly monotone, then there may exist infinitely many optimal policies which are not base-stock and not time consistent. This is in a sharp contrast with the risk neutral formulation of the inventory model where all optimal policies are time consistent.

Keywords: inventory model, base-stock policy, time consistency, distributional robustness, moment constraints, coherent risk measures

Category 1: Robust Optimization

Category 2: Stochastic Programming

Category 3: Applications -- OR and Management Sciences (Supply Chain Management )

Citation: submitted for publication

Download: [PDF]

Entry Submitted: 09/29/2017
Entry Accepted: 09/29/2017
Entry Last Modified: 09/29/2017

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