Capacity Planning under Uncertainty: an Asian Option Approach
نویسندگان
چکیده
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.
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