A practical assessment of risk-averse approaches in production lot-sizing problems

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A practical assessment of risk-averse approaches in production lot-sizing problems. / Alem, Douglas; Oliveira, Fabricio; Peinado, Miguel Carríon Ruiz .

In: International Journal of Production Research, 28.05.2019.

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@article{5aa83598e6e74941a82c71d8ebfc557b,
title = "A practical assessment of risk-averse approaches in production lot-sizing problems",
abstract = "This paper presents an empirical assessment of four state-of-the-art risk-averse approaches to deal with the capacitated lot-sizing problem under stochastic demand. We analyse two mean-risk models based on the semideviation and on the conditional value-at-risk risk measures, and alternate first and second-order stochastic dominance approaches. The extensive computational experiments based on different instances characteristics and on a case-study suggest that CVaR exhibits a good trade-off between risk and performance, followed by the semideviation and first-order stochastic dominance approach. For all approaches, enforcing risk-aversion helps to reduce the cost-standard deviation substantially, which is usually accomplished via increasing production rates. Overall, we can say that very risk-averse decision-makers would be willing to pay an increased price to have a much less risky solution given by CVaR. In less risk-averse settings, though, semideviation and first-order stochastic dominance can be appealing alternatives to provide significantly more stable production planning costs with a marginal increase of the expected costs.",
keywords = "lot-sizing, two-stage stochastic programming, risk aversion, CVaR, semideviation, first-order stochastic dominance, second-order stochastic dominance",
author = "Douglas Alem and Fabricio Oliveira and Peinado, {Miguel Carr{\'i}on Ruiz}",
year = "2019",
month = "5",
day = "28",
doi = "10.1080/00207543.2019.1620364",
language = "English",
journal = "International Journal of Production Research",
issn = "0020-7543",
publisher = "Taylor and Francis Ltd.",

}

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TY - JOUR

T1 - A practical assessment of risk-averse approaches in production lot-sizing problems

AU - Alem, Douglas

AU - Oliveira, Fabricio

AU - Peinado, Miguel Carríon Ruiz

PY - 2019/5/28

Y1 - 2019/5/28

N2 - This paper presents an empirical assessment of four state-of-the-art risk-averse approaches to deal with the capacitated lot-sizing problem under stochastic demand. We analyse two mean-risk models based on the semideviation and on the conditional value-at-risk risk measures, and alternate first and second-order stochastic dominance approaches. The extensive computational experiments based on different instances characteristics and on a case-study suggest that CVaR exhibits a good trade-off between risk and performance, followed by the semideviation and first-order stochastic dominance approach. For all approaches, enforcing risk-aversion helps to reduce the cost-standard deviation substantially, which is usually accomplished via increasing production rates. Overall, we can say that very risk-averse decision-makers would be willing to pay an increased price to have a much less risky solution given by CVaR. In less risk-averse settings, though, semideviation and first-order stochastic dominance can be appealing alternatives to provide significantly more stable production planning costs with a marginal increase of the expected costs.

AB - This paper presents an empirical assessment of four state-of-the-art risk-averse approaches to deal with the capacitated lot-sizing problem under stochastic demand. We analyse two mean-risk models based on the semideviation and on the conditional value-at-risk risk measures, and alternate first and second-order stochastic dominance approaches. The extensive computational experiments based on different instances characteristics and on a case-study suggest that CVaR exhibits a good trade-off between risk and performance, followed by the semideviation and first-order stochastic dominance approach. For all approaches, enforcing risk-aversion helps to reduce the cost-standard deviation substantially, which is usually accomplished via increasing production rates. Overall, we can say that very risk-averse decision-makers would be willing to pay an increased price to have a much less risky solution given by CVaR. In less risk-averse settings, though, semideviation and first-order stochastic dominance can be appealing alternatives to provide significantly more stable production planning costs with a marginal increase of the expected costs.

KW - lot-sizing

KW - two-stage stochastic programming

KW - risk aversion

KW - CVaR

KW - semideviation

KW - first-order stochastic dominance

KW - second-order stochastic dominance

U2 - 10.1080/00207543.2019.1620364

DO - 10.1080/00207543.2019.1620364

M3 - Article

JO - International Journal of Production Research

JF - International Journal of Production Research

SN - 0020-7543

ER -

ID: 35243919