Robust newsvendor problem with discrete demand

Abstract

In this paper, we study the newsvendor problem with partial information about the discrete demand distribution, to provide the theoretical guidance and referential decision for decision makers. We derive the optimal order strategy for a robust newsvendor model with discrete demand, where the newsvendor maximizes his worst-case expected profit. The result show that the robust ordering behavior of the newsvendor for discrete demand can be significantly different from that for continuous demand. Our approach can be extended to a variety of problems with limited information of discrete stochastic variable that require a robust solution.