American Institute of Mathematical Sciences

Advanced
January  2008, 4(1): 81-94. doi: 10.3934/jimo.2008.4.81

Optimal portfolios under a value-at-risk constraint with applications to inventory control in supply chains

K. F. Cedric Yiu 1, , S. Y. Wang 2, and  K. L. Mak 2,

1. 

Department of Applied Mathematics, The Hong Kong Polytechnic University, Kowloon, Hong Kong, China
2. 

Department of Industrial and Manufacturing Systems Engineering, The University of Hong Kong, Pokfulam Road, Hong Kong, China, China

Received  August 2006 Revised  November 2007 Published  January 2008

The optimal portfolio problem under a VaR (value at risk) constraint is reviewed. Two different formulations, namely with and without consumption, are illustrated. This problem can be formulated as a constrained stochastic optimal control problem. The optimality conditions can be derived using the dynamic programming technique and the method of Lagrange multiplier can be applied to handle the VaR constraint. The method is extended for inventory management. Different from traditional inventory models of minimizing overall cost, the cashflow dynamic of a manufacturer is derived by considering a portfolio of inventory of raw materials together with income and consumption. The VaR of the portfolio of assets is derived and imposed as a constraint. Furthermore, shortage cost and holding cost can also be formulated as probabilistic constraints. Under this formulation, we find that holdings in high risk inventory are optimally reduced by the imposed value-at-risk constraint.
Keywords: Optimal portfolio; Inventory control; Value-at-risk; HJB-equation..
Mathematics Subject Classification: 91B28, 49L2.
Citation: K. F. Cedric Yiu, S. Y. Wang, K. L. Mak. Optimal portfolios under a value-at-risk constraint with applications to inventory control in supply chains. Journal of Industrial & Management Optimization, 2008, 4 (1) : 81-94. doi: 10.3934/jimo.2008.4.81
[1]

Jingzhen Liu, Lihua Bai, Ka-Fai Cedric Yiu. Optimal investment with a value-at-risk constraint. Journal of Industrial & Management Optimization, 2012, 8 (3) : 531-547. doi: 10.3934/jimo.2012.8.531
[2]

Jiongmin Yong. Time-inconsistent optimal control problems and the equilibrium HJB equation. Mathematical Control & Related Fields, 2012, 2 (3) : 271-329. doi: 10.3934/mcrf.2012.2.271
[3]

Ming Yan, Hongtao Yang, Lei Zhang, Shuhua Zhang. Optimal investment-reinsurance policy with regime switching and value-at-risk constraint. Journal of Industrial & Management Optimization, 2017, 13 (5) : 1-17. doi: 10.3934/jimo.2019050
[4]

Helmut Mausser, Oleksandr Romanko. CVaR proxies for minimizing scenario-based Value-at-Risk. Journal of Industrial & Management Optimization, 2014, 10 (4) : 1109-1127. doi: 10.3934/jimo.2014.10.1109
[5]

Haiyang Wang, Zhen Wu. Time-inconsistent optimal control problem with random coefficients and stochastic equilibrium HJB equation. Mathematical Control & Related Fields, 2015, 5 (3) : 651-678. doi: 10.3934/mcrf.2015.5.651
[6]

Vladimir Gaitsgory, Tanya Tarnopolskaya. Threshold value of the penalty parameter in the minimization of $L_1$-penalized conditional value-at-risk. Journal of Industrial & Management Optimization, 2013, 9 (1) : 191-204. doi: 10.3934/jimo.2013.9.191
[7]

W.C. Ip, H. Wong, Jiazhu Pan, Keke Yuan. Estimating value-at-risk for chinese stock market by switching regime ARCH model. Journal of Industrial & Management Optimization, 2006, 2 (2) : 145-163. doi: 10.3934/jimo.2006.2.145
[8]

Hao-Zhe Tay, Kok-Haur Ng, You-Beng Koh, Kooi-Huat Ng. Model selection based on value-at-risk backtesting approach for GARCH-Type models. Journal of Industrial & Management Optimization, 2017, 13 (5) : 1-20. doi: 10.3934/jimo.2019021
[9]

Meng Xue, Yun Shi, Hailin Sun. Portfolio optimization with relaxation of stochastic second order dominance constraints via conditional value at risk. Journal of Industrial & Management Optimization, 2017, 13 (5) : 1-22. doi: 10.3934/jimo.2019071
[10]

Kegui Chen, Xinyu Wang, Min Huang, Wai-Ki Ching. Compensation plan, pricing and production decisions with inventory-dependent salvage value, and asymmetric risk-averse sales agent. Journal of Industrial & Management Optimization, 2018, 14 (4) : 1397-1422. doi: 10.3934/jimo.2018013
[11]

Shuang Li, Chuong Luong, Francisca Angkola, Yonghong Wu. Optimal asset portfolio with stochastic volatility under the mean-variance utility with state-dependent risk aversion. Journal of Industrial & Management Optimization, 2016, 12 (4) : 1521-1533. doi: 10.3934/jimo.2016.12.1521
[12]

Shuren Liu, Qiying Hu, Yifan Xu. Optimal inventory control with fixed ordering cost for selling by internet auctions. Journal of Industrial & Management Optimization, 2012, 8 (1) : 19-40. doi: 10.3934/jimo.2012.8.19
[13]

Yanqing Hu, Zaiming Liu, Jinbiao Wu. Optimal impulse control of a mean-reverting inventory with quadratic costs. Journal of Industrial & Management Optimization, 2018, 14 (4) : 1685-1700. doi: 10.3934/jimo.2018027
[14]

Xiaoxi Li, Marc Quincampoix, Jérôme Renault. Limit value for optimal control with general means. Discrete & Continuous Dynamical Systems - A, 2016, 36 (4) : 2113-2132. doi: 10.3934/dcds.2016.36.2113
[15]

Chao Deng, Haixiang Yao, Yan Chen. Optimal investment and risk control problems with delay for an insurer in defaultable market. Journal of Industrial & Management Optimization, 2017, 13 (5) : 1-17. doi: 10.3934/jimo.2019070
[16]

Nguyen Huy Chieu, Jen-Chih Yao. Subgradients of the optimal value function in a parametric discrete optimal control problem. Journal of Industrial & Management Optimization, 2010, 6 (2) : 401-410. doi: 10.3934/jimo.2010.6.401
[17]

Yufei Sun, Grace Aw, Kok Lay Teo, Guanglu Zhou. Portfolio optimization using a new probabilistic risk measure. Journal of Industrial & Management Optimization, 2015, 11 (4) : 1275-1283. doi: 10.3934/jimo.2015.11.1275
[18]

Li Xue, Hao Di. Uncertain portfolio selection with mental accounts and background risk. Journal of Industrial & Management Optimization, 2019, 15 (4) : 1809-1830. doi: 10.3934/jimo.2018124
[19]

Honglei Xu, Peng Sui, Guanglu Zhou, Louis Caccetta. Dampening bullwhip effect of order-up-to inventory strategies via an optimal control method. Numerical Algebra, Control & Optimization, 2013, 3 (4) : 655-664. doi: 10.3934/naco.2013.3.655
[20]

Dingjun Yao, Kun Fan. Optimal risk control and dividend strategies in the presence of two reinsurers: Variance premium principle. Journal of Industrial & Management Optimization, 2018, 14 (3) : 1055-1083. doi: 10.3934/jimo.2017090

2018 Impact Factor: 1.025

Tools

Metrics

  • PDF downloads (8)
  • HTML views (0)
  • Cited by (6)

Other articles
by authors

[Back to Top]

Copyright © 2019 American Institute of Mathematical Sciences