IDEAS home Printed from https://ideas.repec.org/a/now/fnttom/0200000096-9.html
   My bibliography  Save this article

The Term Structure of Optimal Operations

Author

Listed:
  • Guiotto, Paolo
  • Roncoroni, Andrea
  • Turcic, Danko

Abstract

Inventory and capacity planning models generally take the time of sale as something that is exogenously given. For example, the story associated with the well-known newsvendor model is one of stocking for an upcoming selling season that will happen x units of time from now, where x is exogenous. In this paper, we re-visit the capacity planning decision by assuming that demand follows a stochastic process and study what happens when both the time of sale and capacity are decisions. When the selling price is fixed, our baseline case, we find that the optimal time to sell is either now or never. In contrast, when the selling price is stochastic, the optimal time to serve demand is somewhere between now and never. Thus, we link timing preference to two primary sources: uncertainty in demand and uncertainty in the selling price. Our results are useful whenever firms have considerable control over timing, such as in events when firms launch new products or in instances when there is no apparent selling season.

Suggested Citation

  • Guiotto, Paolo & Roncoroni, Andrea & Turcic, Danko, 2020. "The Term Structure of Optimal Operations," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 14(1-2), pages 155-177, October.
    • Handle: RePEc:now:fnttom:0200000096-9
    DOI: 10.1561/0200000096-9
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1561/0200000096-9
    Download Restriction: no
    File URL: https://libkey.io/10.1561/0200000096-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. L. C. G. Rogers, 2002. "Monte Carlo valuation of American options," Mathematical Finance, Wiley Blackwell, vol. 12(3), pages 271-286, July.
    2. James E. Smith, 2005. "Alternative Approaches for Solving Real-Options Problems," Decision Analysis, INFORMS, vol. 2(2), pages 89-102, June.
    3. Nadarajah, Selvaprabu & Margot, François & Secomandi, Nicola, 2017. "Comparison of least squares Monte Carlo methods with applications to energy real options," European Journal of Operational Research, Elsevier, vol. 256(1), pages 196-204.
    4. James E. Smith & Kevin F. McCardle, 1999. "Options in the Real World: Lessons Learned in Evaluating Oil and Gas Investments," Operations Research, INFORMS, vol. 47(1), pages 1-15, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Cao, Bin & Chen, Xin & Cheng, T. C. Edwin & Zhong, Yuan-Guang & Zhou, Yong-Wu, 2020. "Inventory and Financial Strategies with Capital Constraints and Limited Joint Liability," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 14(1-2), pages 44-59, October.
    2. Yang, S. Alex & Birge, John R., 2020. "Trade Credit in Supply Chains: Multiple Creditors and Priority Rules," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 14(1-2), pages 5-22, October.
    3. de Matta, Renato & Hsu, Vernon, 2020. "Managing Disruption Risk Over the Product Life Cycle," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 14(1-2), pages 121-137., October.
    4. Ghoddusi, Hamed, 2020. "Renewable Identification Numbers: A Supply-Chain Risk View," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 14(1-2), pages 77-100, October.
    5. Nadarajah, Selvaprabu & Secomandi, Nicola, 2020. "Least Squares Monte Carlo and Approximate Linear Programming with an Energy Real Option Application," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 14(1-2), pages 178-202, October.
    6. Kouvelis, Panos & Dong, Ling & Turcic, Danko, 2020. "Advances in Supply Chain Finance and FinTech Innovations Overview," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 14(1-2), pages 1-4, October.
    7. Shao, Lusheng & Anderson, Edward & Chen, Bo, 2020. "Achieving Efficiency in Capacity Procurement," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 14(1-2), pages 138-154., October.
    8. Lin, Tiantian & Zhou, Weihua & Cai, Gangshu (George), 2020. "Guarantor Financing Selection Under Influence of Supply Chain Leadership and Economies of Scale," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 14(1-2), pages 23-43, October.
    9. Glinsky, Vadim & Chopra, Sunil & Lücker, Florian, 2020. "Managing Disruption Risk Over the Product Life Cycle," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 14(1-2), pages 101-120, October.
    10. Gan, Rowena Jingxing & Tsoukalas, Gerry & Netessine, Serguei, 2020. "Financing Inventory Through Initial Coin Offerings (ICOs)," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 14(1-2), pages 60-76, October.
    11. Secomandi, Nicola & Seppi, Duane J., 2014. "Real Options and Merchant Operations of Energy and Other Commodities," Foundations and Trends(R) in Technology, Information and Operations Management, now publishers, vol. 6(3-4), pages 161-331, July.
    12. Alain Bensoussan & Benoit Chevalier-Roignant & Alejandro Rivera, 2022. "A model for wind farm management with option interactions," Post-Print hal-04325553, HAL.
    13. Nicola Secomandi, 2010. "Optimal Commodity Trading with a Capacitated Storage Asset," Management Science, INFORMS, vol. 56(3), pages 449-467, March.
    14. Tianyang Wang & James S. Dyer, 2010. "Valuing Multifactor Real Options Using an Implied Binomial Tree," Decision Analysis, INFORMS, vol. 7(2), pages 185-195, June.
    15. Guoming Lai & Mulan X. Wang & Sunder Kekre & Alan Scheller-Wolf & Nicola Secomandi, 2011. "Valuation of Storage at a Liquefied Natural Gas Terminal," Operations Research, INFORMS, vol. 59(3), pages 602-616, June.
    16. Secomandi, Nicola, 2016. "A tutorial on portfolio-based control algorithms for merchant energy trading operations," Journal of Commodity Markets, Elsevier, vol. 4(1), pages 1-13.
    17. Nadarajah, Selvaprabu & Margot, François & Secomandi, Nicola, 2017. "Comparison of least squares Monte Carlo methods with applications to energy real options," European Journal of Operational Research, Elsevier, vol. 256(1), pages 196-204.
    18. Pendharkar, Parag C., 2010. "Valuing interdependent multi-stage IT investments: A real options approach," European Journal of Operational Research, Elsevier, vol. 201(3), pages 847-859, March.
    19. Ravi Kashyap, 2022. "Options as Silver Bullets: Valuation of Term Loans, Inventory Management, Emissions Trading and Insurance Risk Mitigation using Option Theory," Annals of Operations Research, Springer, vol. 315(2), pages 1175-1215, August.
    20. Secomandi, Nicola, 2022. "Quadratic hedging of risk neutral values," Energy Economics, Elsevier, vol. 112(C).

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:now:fnttom:0200000096-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Lucy Wiseman (email available below). General contact details of provider: http://www.nowpublishers.com/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.