CVaR in a Newsvendor Model with Lost Sale Penalty Cost

The traditional treatment of supply chain models largely focuses on the optimization of the expected value of a given cost or profit measure.Owing to highly uncertainty in supply and demand,the use of the expected objective measure may be not justified.In this paper,in a Conditional Value-at-Risk(CVaR) framework,we study the impact of lost sale penalty cost and degree of risk aversion on a risk averse retailer's optimal ordering quantity in the newsvendor setting.When there is no lost sale penalty cost,it is well known that a risk averse retailer's optimal ordering quantity is less than that of a risk neutral retailer.We show that when there is lost sale penalty cost the conclusion may not be true,which depends on demand distribution,degree of risk aversion and the value of shortage cost.And then we illustrate our findings by two examples.