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Application of the Collateralized Debt Obligation (CDO) Approach for Managing Inventory Risk in the Classical Newsboy Problem

International Journal of Business and Information

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Field Value
 
Title Application of the Collateralized Debt Obligation (CDO) Approach for Managing Inventory Risk in the Classical Newsboy Problem
 
Creator Sumita, Ushio
Ohashi, Satoshi
Sumita, Ushio
 
Description In the midst of the ongoing world financial crisis, the Collateralized Debt Obligation (CDO) became notorious for playing a major role in the decline. The fact that misuse of the CDO resulted in collapse of the world economy, however, does not necessarily imply that the CDO itself is hazardous. This paper explores the potential of the CDO approach for controlling general risks, by applying it to the classical Newsboy Problem (NBP). The underlying opportunity loss of NBP replaces the credit risk of CDO. For Value at Risk (VaR) problems formulated without or with CDO, extensive numerical experiments reveal that the overall effect of CDO is rather limited. It could be effective, however, if (i) the underlying risk is high in that the variability of the stochastic demand D is substantially large; (ii) the expected profit should be held above a high level; (iii) the probability of having a huge loss should be contained; and (iv) the detachment point Kd should be held relatively low.
 
Publisher International Business Academics Consortium
 
Date 2015-11-13
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
 
Format application/pdf
 
Identifier https://ijbi.org/ijbi/article/view/55
 
Source International Journal of Business and Information; Vol 6 No 1 (2011)
2520-0151
1728-8673
 
Language eng
 
Relation https://ijbi.org/ijbi/article/view/55/59
 
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