The role of put option contracts in supply chain management under inflation

Wan, Nana; Chen, Xu

doi:10.1111/itor.12372

Cited by 18 publications

(22 citation statements)

References 45 publications

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“…The papers by Wan and Chen (2015a, 2015b, 2015c) are closest to our work. In these papers, they separately incorporate the effect of inflation and one certain type of option contracts into a modeling structure.…”

Section: Literature Reviewsupporting

confidence: 53%

“…In this section, we review three related papers written by Wan and Chen (2015a, 2015b, 2015c). In each article, one certain type of portfolio contracts are considered consisting of wholesale price contracts and one certain type of option contracts.…”

Section: Three Related Papersmentioning

confidence: 99%

“…However, most of the published papers only consider the demand uncertainty and neglect the risks of demand and price caused by inflation. Given such conditions, Wan and Chen (2015a, 2015b, 2015c) incorporate the effect of inflation and option games into a modeling framework, and investigate the role of option contracts on the supply chain decisions and performance under inflation. They prove that the utilization of option contracts is beneficial for the members to improve their economic efficiency and for the channel to achieve the coordination under inflation.…”

Section: Introductionmentioning

confidence: 99%

“…To answer the above questions, we limit ourselves to the same problem setting as Wan and Chen (2015a, 2015b, 2015c). To some extent, our work can be considered as an extension of the above papers.…”

Section: Introductionmentioning

confidence: 99%

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Contracts choice for supply chain under inflation

Wan

Chen

2016

Int Trans Operational Res

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Inflation causes an increase in the retail price and a decrease in the market demand, both arise from the problem of seasonal product management and occur during the long production lead time. As an effective tool for hedging against the risks, option contracts, including call, put, and bidirectional option contracts, have been proved to benefit two members in a one-supplier and one-retailer supply chain under inflation. The aim of this paper is to examine the effect of different option contacts on the decisions and performances for both the supplier and the retailer under inflation. Our results suggest that the retailer prefers adopting portfolio contracts with bidirectional options under inflation, whereas the supplier is inclined to provide call option contracts under inflation. Our study also reveals that call option contracts are implemented ultimately by the supply chain under inflation because of the supplier's market dominant position.

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Section: Literature Reviewsupporting

confidence: 53%

Section: Three Related Papersmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Contracts choice for supply chain under inflation

Wan

Chen

2016

Int Trans Operational Res

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“…() analyzed a system in which a newsvendor‐like retailer orders Call options from a supplier with an emergency order opportunity. Wan and Chen () considered a supply chain consisting of a supplier who manufactures one type of perishable product, characterized by a long lead time, and a retailer who purchases these products from the supplier and sells them to end consumers. In order to hedge against the risks of price and demand caused by inflation, the retailer obtains the products from the supplier by means of both portfolio contracts and Put options (i.e., a combination of wholesale price contracts and Put option contracts).…”

Section: Introductionmentioning

confidence: 99%

Real‐time waiting‐price trading interval in a heterogeneous options market: a Bernoulli distribution

Shvimer

Herbon

2020

Int Trans Operational Res

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Options pricing remains an open research question that is challenging for both theoreticians and practitioners. Unlike many classical binomial models that assume a “representative agent,” the model suggested herein considers two players who are heterogeneous with respect to their estimations of the distribution of the underlying asset price on expiration day, and with respect to their levels of willingness to make a transaction (eagerness level). A two‐player binomial model is developed to find the real‐time optimal option price in two stages. First, we determine a primary feasible pricing domain. We then find a narrower feasible domain, termed the “waiting‐price trading interval,” meaning the region within which the players may either wait for better offers (due to a change in market conditions or player beliefs), or make an immediate transaction. The suggested model is formulated by a nonlinear optimization problem and the optimal price is shown to be unique. We demonstrate that the counter player's eagerness level has a significant effect on the proposed optimal option price. Using empirical analysis, several known lattice‐based models for option pricing, such as CRR and Tian, are compared with the current model (herein, S‐H) in which the price offered by the model player takes into account the subjective beliefs of the opposing market player. The comparison shows significant advantages to the S‐H model in terms of the expected profit on expiration day.

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