The integration of marketing and demand with logistics and inventories (supply side of companies) may cause multiple improvements; it can revolutionize the management of the revenue of rental companies, hotels, and airlines. In this paper, we develop a multi-objective pricing-inventory model for a retailer. Maximizing the retailer's profit and the service level are the objectives, and shorta...

We consider dynamic pricing and replenishment decisions for a production/inventory system modeled by a make-to-stock queue. The potential customer demand is generated by a MarkovModulated (environment-dependent) Poisson process and the actual demand depends on the price offered at the time of the transaction. Using a Markov Decision Process framework, we obtain results on the structure of the o...

We analyze the problem of pricing and hedging contingent claims in a financial market described by a multi-period, discrete-time, finite-state scenario tree using an arbitrage-adjusted Sharpe-ratio criterion. We show that the writer’s and buyer’s pricing problems are formulated as conic convex optimization problems which allow to pass to dual problems over martingale measures and yield tighter ...

In this paper, we consider the problem of pricing discretely-sampled variance swaps based on a hybrid model of stochastic volatility and stochastic interest rate with regime-switching. Our modeling framework extends the Heston stochastic volatility model by including the CIR stochastic interest rate and model parameters that switch according to a continuous-time observable Markov chain process....

This paper uses a nonlinear arbitrage pricing model, a conditional linear model, and an unconditional linear model to price international equities, bonds, and forward currency contracts. Unlike linear models, the nonlinear arbitrage pricing model requires no restrictions on the payoff space, allowing it to price payoffs of options, forward contracts and other derivative securities. Only the non...

In this chapter, we describe stochastic discounting and valuation of random cash flows in a discrete time setting. We therefore introduce a consistent multiperiod pricing framework. This consistent multiperiod pricing framework is either based on state price deflators or on equivalent martingale measures. The connection between these two pricing concepts is then described by the market price of...

1 Background In many regions, electricity demand varies significantly based on time of day. The difference in electricity demand between peak and off-peak time periods has increased annually in Japan.1 A decreased load factor implies a high adjustment of electricity supply. Thus, electricity suppliers must increase the electricity price, which might lead to a decrease in consumer welfare. To re...

In this chapter, we describe stochastic discounting and valuation of random cash flows in a discrete time setting. We therefore introduce a consistent multiperiod pricing framework. This consistent multiperiod pricing framework is either based on state price deflators or on equivalent martingale measures. The connection between these two pricing concepts is then described by the market price of...

We analyse congestion pricing in a road and rail network, where the two modes are imperfect substitutes. On the road there is bottleneck congestion; in each train there is crowding congestion. We model two dimensions of preference heterogeneity; these two dimensions have opposite effects on the welfare impact of congestion pricing and lead to different distributional effects. The distributional...

Recent years have witnessed phenomenal growth of successful deployments of innovative pricing strategies in a variety of industries. For instance, no company underscores the impact of the Internet on product pricing strategies more than Dell Computers. The price of a product is not fixed on Dell’s Web site; it may change significantly over time. Of course, Dell is not alone in its use of sophis...