Optimal Pricing and Stocking Decisions for Newsvendor Problem With Value-at-Risk Consideration

Motivated by the popularity of VaR measure in financial applications, we study the classical newsvendor problem with Value-at-Risk (VaR) consideration and price-dependent demands. We first investigate the problem´s structural properties and derive analytically the optimal joint stocking and pricing decisions. We then explore the difference between the optimal decisions under the VaR formulation and the classical expected profit-maximization model. Finally, we reveal an interesting analytical relationship between the inventory service level and the VaR measure. Insights are generated.