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Seminars

A Revenue Optimization Problem in a Competitive Market

Date: 03-06-2008
Start Time: 1:00pm
End Time: 2:00pm
Speaker: Shijie Deng, Georgia Institute of Technology
Location: TBA

ABSTRACT

Using a real-option approach, we derive optimal selling strategies to maximize revenue from selling perishable underlying, including both products and services, in advance. Different from the extant research in the literature on revenue management, we take the competition-varying effects into account in this study, and consider the market demand affected by the fluctuation of underlying price in a competitive market. We also show analytically that the maximal profit margin of unsold underlying decreases in its residual quantity, and that the optimal premium charged by suppliers averagely decreases when it gets closer to the end of the selling horizon. Optimal trading policy is well structured. Numerical examples further characterize the particular properties of optimally selling the ocean cargo freight derivatives.

This is joint work with Youyi Feng of the Chinese University of Hong Kong and Xun Li of the National University of Singapore.

BIO

Shi-Jie Deng is an Associate Professor in H. Milton Stewart School of Industrial and Systems Engineering at the Georgia Institute of Technology. He holds a Ph.D. in Industrial Engineering and Operations Research from the University of California at Berkeley. Dr. Deng actively researches and teaches in financial modeling in energy markets, electricity transmission pricing, financial asset pricing and real options valuation, and the procurement and contract theory in supply chains. He is the director of the Master of Science Program in Quantitative & Computational Finance at Georgia Tech. He currently serves as an Associate Editor for Operations Research. He received the CAREER Award from the National Science Foundation in 2002.

Dr. Deng has consulted with several private and public companies on issues of energy derivative pricing, structured transactions, and risk management in the deregulated electricity industry.