Censored newsvendor model revisited  with unnormalized probabilities

Alain Bensoussan; Metin Çakanyildirim; Suresh P. Sethi

doi:10.3934/jimo.2009.5.391

Article Contents

2009, Volume 5, Issue 2: 391-402. Doi: 10.3934/jimo.2009.5.391

This issue Previous Article On the generalized proximal point algorithm with applications to inclusion problems Next Article On regularisation parameter transformation of support vector machines

Censored newsvendor model revisited with unnormalized probabilities

1.
International Center for Decision and Risk Analysis, School of Management, P.O.Box 830688, SM 30, University of Texas at Dallas, Richardson, TX 75083-0688
2.
School of Management, P.O.Box 830688, SM 30, University of Texas at Dallas, Richardson, TX 75083-0688
3.
Center for Intelligent Supply Networks, School of Management, P.O.Box 830688, SM 30, University of Texas at Dallas, Richardson, TX 75083-0688

Received: March 31, 2008

Revised: September 30, 2008

Published: March 2009

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Abstract

This paper revisits the model of the censored newsvendor presented by Ding, Puterman and Bisi [8], We analyze that model in an infinite-horizon context by using the interesting concept of unnormalized probabilities. The unnormalized probabilities considerably simplify the dynamic programming equation and facilitate the proof of the existence of an optimal policy. They can also be used to give a simple, alternative proof to Ding et al.'s claim that the myopic order quantity is always less than or equal to the optimal order quantity. Importantly, the concept of unnormalized probabilities can be used to treat other important operations research problems with partial observations.

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Mathematics Subject Classification: Primary: 93C41, 93C41; Secondary: 49L20.

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