2016 INFORMS Annual Meeting Program

WB43

INFORMS Nashville – 2016

WB42 207D-MCC RM in Practice II Sponsored: Revenue Management & Pricing Sponsored Session Chair: Xiaodong Yao, SAS Institute, Inc., SAS Campus Drive, Cary, NC, 27513, United States, xiaodong.yao@sas.com 1 - Single-resource Capacity Control In The Presence Of Cancellations, No-shows And Overbooking Jason Chen, Principal Operations Research Specialist, SAS Institute, Inc., Cary, NC, 27513, United States, Jason.Chen@sas.com Single-resource capacity control problem is one of the most basic and well-studied problems in quantity-based revenue management. Both exact methods and efficient heuristic methods exist when cancellations and no-shows are ignored. Dynamic-programming models have been proposed to solve the problem with cancellation, no-show, and overbooking. But the DP model is only tractable for small size problems. We present an efficient and highly scalable heuristic and analyze its performance. 2 - Evolution Of Revenue Management Systems At Intercontinental Hotels Group Chanjoo Lee, InterContinental Hotels Group, chanjoo.Lee@ihg.com IHG’s PERFORM Price Optimization project started in 2005 to drive key strategic priorities such as brand performance enhancement and excellent hotel returns. The project was a large-scale enterprise implementation of price optimization in the hospitality industry and provided a 2.7% increase in revenue as verified in the IHG 2009 Annual Report. In this talk, we will discuss how the IHG Revenue Management Systems including PERFORM Price Optimization evolved to increase user acceptance from the hotels and drive revenue improvement over the years. 3 - Pricing And Revenue Management Of Function Space In Hotels Xiaodong Yao, SAS Institute, Cary, NC, 27513, United States, Xiaodong.Yao@sas.com, Altan Gulcu Function space sales may provide significant contribution to the bottom line of hotels, but implementing revenue management principles comes with additional challenges. In this presentation, we review pricing and revenue management techniques used for planning and management of function space in hotels. WB43 208A-MCC Decision Making with Incentives Sponsored: Decision Analysis Sponsored Session Chair: Andrea Hupman Cadenbach, University of Missouri - St. Louis, St Louis, MO, United States, cadenbach@umsl.edu 1 - Consider The Alternatives: New Ways To Finance Early-stage Entrepreneurs Samuel E Bodily, University of Virginia, bodilys@virginia.edu A startup business is ready for launch, yet the entrepreneur is unwilling to take the considerable financial and potentially career-debilitating personal risk. We compare game-changing alternatives to the usual equity model a backer may use to finance the start-up: revenue contracts, derivative swaps, incentive gifts, and insurance. We answer which best reduces the risk to the entrepreneur and provides the best incentives, at a given cost to the backers, and without moral hazard. Risk analysis models are used to compare certainty equivalents of these financing alternatives. 2 - Nudging Vaccination With A No-fault Insurance Emmanuel F Drabo, University of Southern California, Los Angeles, CA, 90089-3333, United States, drabo@usc.edu, Neeraj Sood, Joel W Hay, Jason N Doctor Loss aversion in prospect theory and the K szegi-Rabin utility theory predicts that insurance will be preferred to its expected value, hence implying that insuring small risks of vaccine side effects can incentivize vaccine uptake. We test this prediction through a discrete choice experiment with 1257 MTurk subjects randomized into an insurance and a subsidy (expected value of insurance) group to make choices among hypothetical vaccination scenarios. Vaccine uptake was 1.5 percentage points greater among non-female respondents in the insurance arm relative to the subsidy arm. This suggests that a no-fault insurance against vaccine side effects can be an effective vaccine incentive strategy.

3 - The Bravo Effect For Brownian Queues Rob J Wang, Stanford University, robjwang@stanford.edu, Peter W Glynn In queueing theory, departure processes play a fundamental role. Indeed, for single-station queues, they provide insights into system performance; for feedforward networks, departures from one station constitute arrivals into the next. Recently, there has been much interest in the asymptotic variability of departure processes. The “BRAVO” (Balancing Reduces Asymptotic Variance of Outputs) effect has been shown to manifest itself in many systems. This talk will discuss BRAVO in the context of Brownian queues, which are tractable approximations for various systems in heavy traffic. In particular, we will discuss the timescales at which BRAVO appears, and offer explanations for its occurrence. 4 - Optimal Driver Routing In Crowdsourced Transportation Systems Anton Braverman, Cornell University, Ithaca, NY, United States, ab2329@cornell.edu, J.G. Dai, Xin Liu, Lei Ying We consider a queueing network that models the flow of drivers in a crowdsourced transportation system such as Lyft or Uber. Each time a driver drops off a passenger at their destination, a routing decision needs to be made. Should the driver stay and wait for the next customer at their current location, or should they drive empty to another part of town to try their luck there? The way this decision is made greatly affects the supply of drivers across a city, and can even cause extreme driver shortages in certain regions. We analyze the fluid model corresponding to our network to develop a centralized routing policy for drivers. WB41 207C-MCC Stochastic Control and Quantitative Finance Sponsored: Financial Services Sponsored Session Chair: Xianhua Peng, Hong Kong University of Science & Technology, Hong Kong, maxhpeng@ust.hk 1 - Leverage, Market Liquidity, And Systemic Risk Nan Chen, Chinese University of Hong Kong, nchen@se.cuhk.edu.hk We present a macroeconomic model with a financial intermediary sector subject to a leverage constraint. The model allows us to examine the transition from “normal” states to systemic risk states. An amplification effect through the liquidity channel, both market and funding, can be characterized. 2 - Recursive Utility With Narrow Framing: Existence And Uniqueness Xuedong He, Chinese University of Hong Kong, xdhe@se.cuhk.edu.hk We study the utility of an agent in a model of narrow framing with constant elasticity of intertemporal substitution and relative risk aversion degree and with infinite time horizon. In a finite-state Markovian setting, we prove that the utility uniquely exists when the agent experiences nonnegative utility of gain and loss incurred by holding risky assets and that the utility can be non-exist or non- unique otherwise; in the latter case, we prove the existence and uniqueness with further conditions. Moreover, we prove that the utility, when uniquely exists, can be computed by a recursive algorithm with any starting point. Finally, we solve a portfolio selection problem with narrow framing. 3 - Diversification Of Portfolio Tail Risk Qi Wu, Chinese University of Hong Kong, qwu@se.cuhk.edu.hk We develop explicit and accurate asymptotic expansions of the portfolio VaR and portfolio Expected Shortfall (ES) for a large family of multivariate elliptical distributions. We show that while the tail heaviness of joint asset distribution dictates how much larger portfolio ES is comparing to VaR, it is the tail dependence structure that determines the diversification benefits when sub- portfolios are merged together for joint portfolio margining. 4 - An Empirical Likelihood Method Of Combining Stock And Option Prices Xianhua Peng, Hong Kong University of Science and Technology, maxhpeng@ust.hk, Steven Kou, Tony Sit, Zhiliang Ying As discussed in the finance literature, option prices may contain information about the dynamics of the underlying asset returns including the drift. In this paper, we confirm this viewpoint by showing that the options information leads to shorter confidence intervals for the parameters of the returns dynamics and more efficient ways to reflect current market information. We propose an empirical likelihood based method that can combine the stock return and the associated derivative prices. Our empirical analysis of the S&P500 index and options suggest that inclusion of option prices provides a more seasonable estimates that can reflect the market conditions during the 2009 financial crisis.

409