DAVID D. YAO
Piyasombatkul Family Professor of Industrial Engineering and Operations Research
Columbia University
Integrated Risk-Hedging and Production Planning
Traditional production planning is primarily a quantity or capacity decision, which must be made at the beginning of a planning horizon before production starts. Adding a real-time control, a risk-hedging strategy, throughout the horizon can better mitigate the risk involved in demand volatility. We demonstrate how this can be done in terms of jointly optimizing both the capacity and the hedging decisions. The problem formulation addresses a shortfall risk measure and subjects the hedging strategy to partial information and a budget constraint. The results lead to a complete characterization of the improvement in risk-return tradeoff achieved by the hedging strategy. (Joint work with Liao Wang.)
Traditional production planning is primarily a quantity or capacity decision, which must be made at the beginning of a planning horizon before production starts. Adding a real-time control, a risk-hedging strategy, throughout the horizon can better mitigate the risk involved in demand volatility. We demonstrate how this can be done in terms of jointly optimizing both the capacity and the hedging decisions. The problem formulation addresses a shortfall risk measure and subjects the hedging strategy to partial information and a budget constraint. The results lead to a complete characterization of the improvement in risk-return tradeoff achieved by the hedging strategy. (Joint work with Liao Wang.)