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Operations Research, Systems Engineering and Industrial Engineering Commons

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2001

Capacity shortage

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Full-Text Articles in Operations Research, Systems Engineering and Industrial Engineering

Option Pricing Methods For Estimating Capacity Shortages, Dohyun Pak, Sarah M. Ryan Jan 2001

Option Pricing Methods For Estimating Capacity Shortages, Dohyun Pak, Sarah M. Ryan

Industrial and Manufacturing Systems Engineering Conference Proceedings and Posters

Uncertain demand combined with a positive lead time for adding capacity creates the risk of capacity shortage during the lead time. Accurate shortage estimation is very important to determine a capacity expansion policy. In this paper, we investigate four kinds of option pricing methods to estimate the shortage during a fixed lead time under the assumption of an exponential trend for demand growth. We compare the effect of the different shortage measures on the optimal parameters for an expansion policy over the long term.