Essays on inventory, pricing and financial trading strategies

In a multi-product market, if one product stocks out, consumers may substitute to competing products. In this thesis, we use an axiomatic approach to characterize a price-dependent demand substitution rule, and provide a sufficient and necessary condition for demand models where our demand substitution rule applies. Our results can serve as a link between the pricing and inventory literature, and enable the study of joint pricing and inventory coordination and competition. I demonstrate the impact of this axiomatic approach on the joint pricing and inventory coordination model by incorporating the price-dependent demand substitution rule, and illustrate that if the axiomatic approach is acceptable, the optimal strategy and corresponding expected profit are quite different than models that ignore stockout demand substitution. I use this price-dependent demand substitution rule to model the joint pricing and inventory game, and study the existence of Nash equilibrium in this game. In the second part of this thesis, I consider the problem of dynamically trading a security over a finite time horizon. The model assumes that a trader has a "safe price" for the security, which is the highest price that the trader is willing to pay for this security in each time period. A trader's order has both temporary (short term) and permanent (long term) impact on the security price and the security price may increase after the trader's order, to a point where it is above the safe price. Given a safe price constraint for the current time period, I characterize the optimal policy for the trader to maximize the total number of securities he can buy over a fixed time horizon.

Department dc:contributor.department

Massachusetts Institute of Technology. Operations Research Center.

Grantor dc:publisher

Massachusetts Institute of Technology

Year dc:date.issued

2009

Author dc:creator

• Lu, Ye, Ph. D. Massachusetts Institute of Technology

Advisor dc:contributor.advisor

• David Simchi-Levi.

• Operations Research Center.

Statement dc:rights

• M.I.T. theses are protected by copyright. They may be viewed from this source for any purpose, but reproduction or distribution in any format is prohibited without written permission. See provided URL for inquiries about permission.

Licence dc:rights.uri

• http://dspace.mit.edu/handle/1721.1/7582

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/1721.1/54658

OAI identifier oai:identifier

oai:dspace.mit.edu:1721.1/54658