A Study On An Inventory Model With Dynamic Pricing Under The VAR Criterion

The ever-increasingly deepening economic globalization and the current era driven by market demand has imposed a series of new puzzles for the business community:factors such as market uncertainty, shorter product life cycle and longer procurement lead time have made it more and more difficult for pricing and inventory control. In addition, the fluctuating demand has brought new problems for the risk level of profit control within companies.There is a long history of study on inventory management home and abroad and many research achievements have been accomplished related to dynamic pricing and inventory management joint decisions. However, traditional models mainly focus on expected profit maximization or expected cost minimization within specific period. This method is proper for risk-neutral decision-makers who are not sensitive to the variation of profit or cost. Unfortunately, expected value rule alone does not apply to risk-averse decision makers. Thus, we introduced Value at Risk (VaR) measure which is widely used in financial industry as risk indication and made certain risk magnitude as constraint condition of the target. With risk measurement system introduced, retailers will consider the risk of pricing and inventory strategies while pursuing maximum expected revenue. This article found optimal order quantity and selling price to optimize the profit within specific risk tolerance of the company by solving dynamic pricing inventory model which contains risk constraints.Above all, based on the summary and analysis of domestic and foreign literature, this article pointed out that there is not much study on risk control in inventory management area and existing research methods mainly focus on simple probability or expectation. However, with the popularization of perishable goods, the fact that traditional inventory management does not pay much attention to inventory obsolescence risk has been revealed. By bringing VaR into inventory management, the description ability of inventory risk has been enhanced and has thus paved the way for the model construction. Chapter 3 built a joint decision model of dynamic pricing and inventory with VaR constraints and solved the model with demand subjecting to a certain form. Based on the model solution, Chapter 4 further revealed the solution construction and the impact of model parameter variation on decision and result. Moreover, it also explored the management significance of the model.The study above not only enriched existing risk management theory but also broadened the application space of the inventory management model and can thus provide more adequate scientific basis for decision-makers to make inventory decisions in the real world.