Study On Retailer's Inventory Policy Based On The Option And CVaR

In the fierce competitive market environment, enterprisers have to concern the risks and uncertainties. And every retailer is suffering from unprecedented votality and frangibility. As to the retailers, one hand, short of goods will lead to miss the chance of selling and increase the total cost. So it is necessary to hold some level of inventory. On the other hand, overstock will lead to occupy the storage and capital, increase the cost and decrease the profit. Therefore, how to evaluate and model the uncertainty of demand, and then use properiate method to evade the risk is a serious problem during the decision of a retailer. Using option instrument and CVaR to evaluate the risk could help to solve these problems. Accordingly, there is theoretical and practical significance for this paper.The main contents of thesis includ:1. On the inventory risk, newsvendor model, Option instrument, CVaR (Conditional Value-at-Risk), the thesis anlyzed the current research of several established measurement of criterions, and then introduced the option and the development of option market.2. The thesis introduced the demand consists of two independent Normal distribution, which demand level is high or low. Then created a retailer's policy model basis on the option contract and solve it. By analyzing the differences of profit and risk from the classical Newsvendor model and the new model which add the option instrument; some expressions should be amended with the consideration of the new model needs. The result of this research demonstrate applying options onto the inventory model will leads to a better profit and risk-avoiding performance.3. This thesis is based on the study of the international financial market risk management theory, and verified the model which uses the major method of measuring the risk of financial market at present—CVaR. Therefore, we could establish the models and continue the risk analyses. In the model, we studies the risk of inventory overall, and after construsts the minimization of the CVaR model, we came to the conclusion that a risk-averse decision maker prefers to lower Q, so as to evade inventory risk, despite this is at the expense of some profits.4. According to the industry of clothing, a numerical experiment is showed to prove: as this inventory policy and the risk measuring, the method in this paper has made a better effect.Based on the above main research, the study of the thesis is useful to those retailers whose product has short lifetime and mamagement of inventory in the process of risk management.