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Optimal dynamic procurement policies for a storable commodity with Lévy prices and convex holding costs

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  • Chiarolla, Maria B.
  • Ferrari, Giorgio
  • Stabile, Gabriele
Abstract
In this paper we study a continuous time stochastic inventory model for a commodity traded in the spot market and whose supply purchase is affected by price and demand uncertainty. A firm aims at meeting a random demand of the commodity at a random time by maximizing total expected profits. We model the firm’s optimal procurement problem as a singular stochastic control problem in which controls are nondecreasing processes and represent the cumulative investment made by the firm in the spot market (a so-called stochastic ‘monotone follower problem’). We assume a general exponential Lévy process for the commodity’s spot price, rather than the commonly used geometric Brownian motion, and general convex holding costs.

Suggested Citation

  • Chiarolla, Maria B. & Ferrari, Giorgio & Stabile, Gabriele, 2015. "Optimal dynamic procurement policies for a storable commodity with Lévy prices and convex holding costs," European Journal of Operational Research, Elsevier, vol. 247(3), pages 847-858.
    • Handle: RePEc:eee:ejores:v:247:y:2015:i:3:p:847-858
    DOI: 10.1016/j.ejor.2015.06.061
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    References listed on IDEAS

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    1. Gerardo Berbeglia & Gautam Rayaprolu & Adrian Vetta, 2019. "Pricing policies for selling indivisible storable goods to strategic consumers," Annals of Operations Research, Springer, vol. 274(1), pages 131-154, March.

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