Supply Portfolio Selection and Execution with Demand Information Updates

STOCHASTIC PROCESSES, OPTIMIZATION, AND CONTROL THEORY: APPLICATIONS IN FINANCIAL ENGINEERING, QUEUING NETWORKS, AND MANUFACTURING SYSTEMS, H. Yan, G. Yin and Q. Zhang, eds., pp. 249-279, New York, NY: Springer, 2006

31 Pages Posted: 29 May 2008

See all articles by Haifeng Wang

Haifeng Wang

Tsinghua University - Department of Automation; The Chinese University of Hong Kong - Department of Systems Engineering & Engineering Management

Houmin Yan

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management

Abstract

This paper considers a problem of multi-period supply portfolio selection and execution with demand information updates. A supply portfolio specifies a buyer's decision on selecting sourcing mix from among a group of suppliers. We develop a framework for optimal supply portfolio selection and execution. Further, we demonstrate that the optimal portfolio selection follows a base-stock policy and the option execution follows a modified base-stock policy. We also develop the structural properties of the optimal policy with respect to option contracts and inventories.

Keywords: Portfolio selection, option contract, base-stock policy, supply chain management

Suggested Citation

Wang, Haifeng and Yan, Houmin, Supply Portfolio Selection and Execution with Demand Information Updates. STOCHASTIC PROCESSES, OPTIMIZATION, AND CONTROL THEORY: APPLICATIONS IN FINANCIAL ENGINEERING, QUEUING NETWORKS, AND MANUFACTURING SYSTEMS, H. Yan, G. Yin and Q. Zhang, eds., pp. 249-279, New York, NY: Springer, 2006. Available at SSRN: https://ssrn.com/abstract=1137618

Haifeng Wang (Contact Author)

Tsinghua University - Department of Automation ( email )

Beijing, 100084
China

The Chinese University of Hong Kong - Department of Systems Engineering & Engineering Management ( email )

Hong Kong

Houmin Yan

The Chinese University of Hong Kong (CUHK) - Department of Systems Engineering & Engineering Management ( email )

Shatin, New Territories
Hong Kong

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