Capacity planning under uncertainty: An Asian option approach

Tarik Driouchi; David Bennett; Giuliana Battisti

Capacity planning under uncertainty: An Asian option approach

Tarik Driouchi, David Bennett, Giuliana Battisti

Operations & Information Management

Research output: Unpublished contribution to conference › Unpublished Conference Paper › peer-review

Abstract

This short paper introduces the concept of Asian options in the capacity choice literature. We develop a simple model for optimal capacity setting under average demand uncertainty for a single firm. When the firm faces moderate or significant stochastic demands in its current product line, expanding capacity is beneficial. If the demand is extremely stochastic, a capacity lag or reduction is more profitable.

Original language	English
Number of pages	8
Publication status	Published - 2006
Event	10th Annual International Conference - New York, United States Duration: 14 Jun 2006 → 17 Jun 2006

Conference

Conference	10th Annual International Conference
Country/Territory	United States
City	New York
Period	14/06/06 → 17/06/06

Keywords

arithmetic Asian options
fixed strike
optimal capacity

Cite this

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title = "Capacity planning under uncertainty: An Asian option approach",

abstract = "This short paper introduces the concept of Asian options in the capacity choice literature. We develop a simple model for optimal capacity setting under average demand uncertainty for a single firm. When the firm faces moderate or significant stochastic demands in its current product line, expanding capacity is beneficial. If the demand is extremely stochastic, a capacity lag or reduction is more profitable.",

keywords = "arithmetic Asian options, fixed strike, optimal capacity",

author = "Tarik Driouchi and David Bennett and Giuliana Battisti",

year = "2006",

language = "English",

note = "10th Annual International Conference ; Conference date: 14-06-2006 Through 17-06-2006",

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TY - CONF

T1 - Capacity planning under uncertainty: An Asian option approach

AU - Driouchi, Tarik

AU - Bennett, David

AU - Battisti, Giuliana

PY - 2006

Y1 - 2006

N2 - This short paper introduces the concept of Asian options in the capacity choice literature. We develop a simple model for optimal capacity setting under average demand uncertainty for a single firm. When the firm faces moderate or significant stochastic demands in its current product line, expanding capacity is beneficial. If the demand is extremely stochastic, a capacity lag or reduction is more profitable.

AB - This short paper introduces the concept of Asian options in the capacity choice literature. We develop a simple model for optimal capacity setting under average demand uncertainty for a single firm. When the firm faces moderate or significant stochastic demands in its current product line, expanding capacity is beneficial. If the demand is extremely stochastic, a capacity lag or reduction is more profitable.

KW - arithmetic Asian options

KW - fixed strike

KW - optimal capacity

M3 - Unpublished Conference Paper

T2 - 10th Annual International Conference

Y2 - 14 June 2006 through 17 June 2006

ER -

Capacity planning under uncertainty: An Asian option approach

Abstract

Conference

Keywords

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Cite this