A central problem in planning production capacity is how to effectively manage demand risk. We develop a model that integrates capacity planning and risk hedging decisions under a popular risk measure, conditional value at risk (CVaR). The CVaR objective generalizes the usual risk-neutral...

Demand for many products may depend on the price of a tradable asset or on the economy in general. For instance, demand for equipment that plants or harvests corns correlates with the fluctuations of the corn price on the commodity market; and discount stores experienced increased sales revenue...