Risk Aversion in Inventory Management

Traditional inventory models focus on risk-neutral decision makers, i.e., characterizing replenishment strategies that maximize expected total profit, or equivalently, minimize expected total cost over a planning horizon. In this paper, we propose a framework for incorporating risk aversion in multi-period inventory models as well as multi-period models that coordinate inventory and pricing strategies. In each case, we characterize the optimal policy for various measures of risk that have been commonly used in the finance literature. In particular, we show that the structure of the optimal policy for a decision maker with exponential utility functions is almost identical to the structure of the optimal risk-neutral inventory (and pricing) policies. Computational results demonstrate the importance of this approach not only to risk-averse decision makers, but also to risk-neutral decision makers with limited information on the demand distribution.

Contact Sensing: A Sequential Decision Approach to Sensing Manipulation Contact

This paper describes a new statistical, model-based approach to building a contact state observer. The observer uses measurements of the contact force and position, and prior information about the task encoded in a graph, to determine the current location of the robot in the task configuration space. Each node represents what the measurements will look like in a small region of configuration space by storing a predictive, statistical, measurement model. This approach assumes that the measurements are statistically block independent conditioned on knowledge of the model, which is a fairly good model of the actual process. Arcs in the graph represent possible transitions between models. Beam Viterbi search is used to match measurement history against possible paths through the model graph in order to estimate the most likely path for the robot. The resulting approach provides a new decision process that can be use as an observer for event driven manipulation programming. The decision procedure is significantly more robust than simple threshold decisions because the measurement history is used to make decisions. The approach can be used to enhance the capabilities of autonomous assembly machines and in quality control applications.

An Electronic Market-Maker

This paper presents an adaptive learning model for market-making under the reinforcement learning framework. Reinforcement learning is a learning technique in which agents aim to maximize the long-term accumulated rewards. No knowledge of the market environment, such as the order arrival or price process, is assumed. Instead, the agent learns from real-time market experience and develops explicit market-making strategies, achieving multiple objectives including the maximizing of profits and minimization of the bid-ask spread. The simulation results show initial success in bringing learning techniques to building market-making algorithms.