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The Effects of Financial Risks on Inventory Policy
Lund University. (Supply Chain Studies)
Växjö University, Faculty of Mathematics/Science/Technology, School of Technology and Design.
2005 (English)In: Management science, ISSN 0025-1909, E-ISSN 1526-5501, Vol. 51, no 12, p. 1804-1816Article in journal (Refereed) Published
Abstract [en]

The effect of financial risks on (R, Q) inventory policies is analyzed in a real options framework. Simple adjustments of the usual formulas for R and Q are suggested and tested. Stochastic demand and purchase costs are considered, both with known systematic (business-cycle-related) risk.

The systematic risk of stochastic demand has typically a negligible effect on the optimal values of R and Q, although an improvement may be achieved by a simple adjustment of R.

The systematic risk of the purchase price, c, has a significant effect on R and Q. The capital holding cost should be estimated as r · c, where r is the sum of the risk-free interest rate, the expected price decrease, and the risk premium associated with the systematic risk of c.

For goods quoted on commodity exchanges, r may be estimated directly from the prices on forward contracts. Its size (and sign) varies considerably for different commodities.

Place, publisher, year, edition, pages
INFORMS: Institute for Operations Research, Providence, R.I. , 2005. Vol. 51, no 12, p. 1804-1816
Keyword [en]
inventory control, inventory costing, capital cost, real options
National Category
Transport Systems and Logistics
Research subject
Economy, Logistics
Identifiers
URN: urn:nbn:se:vxu:diva-4402DOI: 10.1287/mnsc.1050.0435OAI: oai:DiVA.org:vxu-4402DiVA, id: diva2:204360
Available from: 2007-03-29 Created: 2007-03-29 Last updated: 2017-12-13Bibliographically approved

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Berling, PeterKaj, Rosling

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  • apa
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  • nn-NB
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  • Other locale
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Output format
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  • asciidoc
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