The Data-Driven Newsvendor Problem: New Bounds and Insights
Consider the newsvendor model, but under the assumption that the underlying demand distribution is not known as part of the input. Instead, the only information available is a random, independent sample drawn from the demand distribution. This paper analyzes the sample average approximation (SAA) ap...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
Institute for Operations Research and the Management Sciences (INFORMS),
2017-08-31T19:43:15Z.
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| Subjects: | |
| Online Access: | Get fulltext |
| Summary: | Consider the newsvendor model, but under the assumption that the underlying demand distribution is not known as part of the input. Instead, the only information available is a random, independent sample drawn from the demand distribution. This paper analyzes the sample average approximation (SAA) approach for the data-driven newsvendor problem. We obtain a new analytical bound on the probability that the relative regret of the SAA solution exceeds a threshold. This bound is significantly tighter than existing bounds, and it matches the empirical accuracy of the SAA solution observed in extensive computational experiments. This bound reveals that the demand distribution's weighted mean spread affects the accuracy of the SAA heuristic. National Science Foundation (U.S.) (Grant DMS-0732175) National Science Foundation (Grant CMMI-0846554) United States. Air Force Office of Scientific Research (Award FA9550-08-1-0369) United States. Air Force Office of Scientific Research (Award FA9550-11-1-0150) National Science Foundation (U.S.) (Grant CMMI- 0824674) National Science Foundation (U.S.) (Grant CMMI-0758061) |
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