scholarly journals Risk minimization inventory model with a profit target and option contracts under spot price uncertainty

2021 ◽  
Vol 0 (0) ◽  
pp. 0
Author(s):  
Nana Wan ◽  
Li Li ◽  
Xiaozhi Wu ◽  
Jianchang Fan
Keyword(s):  
Inventory Model ◽  
Spot Price ◽  
Price Uncertainty ◽  
Risk Minimization ◽  
Option Contracts

Multi-period dual-sourcing replenishment problem with option contracts and a spot market

2018 ◽  
Vol 118 (4) ◽  
pp. 782-805 ◽  
Author(s):  
Nana Wan ◽  
Xu Chen
Keyword(s):  
Wholesale Price ◽  
Price Volatility ◽  
Spot Market ◽  
Approximate Algorithm ◽  
Spot Price ◽  
Stochastic Dynamic ◽  
Operational Strategies ◽  
Content Type ◽  
Option Contracts ◽  
Replenishment Policy

Purpose The spot market has been gradually recognized as an important alternative purchasing source. To maintain a flexible replenishment strategy, call, put and bidirectional option contracts, as a risk hedging, are in combined usage with the spot market, respectively. The purpose of this paper is to analyze a finite-horizon replenishment problem with option contracts in the context of a spot market. Design/methodology/approach Based on stochastic dynamic programming, the firm’s optimal replenishment policy with either call, put or bidirectional option contracts is always shown to be order-up-to type, characterized by an upper threshold and a lower one. The corresponding policy parameters in different cases are calculated through an approximate algorithm. This research highlights the effectiveness of option contracts on the firm’s operational strategies and overall profitability. Findings This study reveals that the firm is better off with option contracts than without them. When the price parameters are the same for different option contracts, bidirectional option contracts are the best choice among these flexible contracts; otherwise, unilateral option contracts might be either better or worse than bidirectional ones. In addition, if low inventory costs and high spot price volatility are confronted, the firm prefers to call option contracts rather than put ones; otherwise, there exists an opposite conclusion. Originality/value In addition to highlight the advantage of option contracts over wholesale price contracts, this paper provides interesting observations with respect to the effect of different option contracts on the firm. Many significant insights derived from this research do not only contribute to the provider’s feasible design of the supply contracts, but also contribute to the user’s rational operational strategies for higher profitability.

Cost-Efficient Strategy in Clouds with Spot Price Uncertainty

2020 ◽  
Vol 81 (4) ◽  
pp. 731-745
Author(s):  
E. E. Ivashko ◽  
A. A. Ivashko ◽  
G. R. Safonov ◽  
A. Tchernykh
Keyword(s):  
Spot Price ◽  
Price Uncertainty ◽  
Efficient Strategy ◽  
Cost Efficient

scholarly journals Multiperiodic Procurement Problem with Option Contracts under Inflation

2016 ◽  
Vol 2016 ◽  
pp. 1-11 ◽  
Author(s):  
Nana Wan ◽  
Xu Chen
Keyword(s):  
Time Horizon ◽  
Inventory Model ◽  
Total Order ◽  
Option Contracts ◽  
Entire Time ◽  
Ordering Policy ◽  
And Performance

This paper studies the problem of the multiperiod replenishment decisions for the retailer under inflation. In order to manage the risks of price and demand caused by inflation, the retailer has an opportunity to order products and purchase options from the supplier in each period. We formulate the multiperiod inventory model for the retailer with option contracts and then derive his myopic ordering policy in each period and his myopic expected total discounted profit over the entire time horizon. By taking the case without option contracts as a benchmark, we explore the effect of option contracts on the retailer’s decisions and performance under inflation. We find that the application of option contracts might induce the retailer to reduce the firm order and increase the total order in each period under inflation. We also find that the application of option contracts might benefit the retailer under inflation.

scholarly journals Multisources Risk Management in a Supply Chain under Option Contracts

2019 ◽  
Vol 2019 ◽  
pp. 1-12
Author(s):  
Jiarong Luo ◽  
Xiaolin Zhang ◽  
Xianglan Jiang
Keyword(s):  
Supply Chain ◽  
Analytical Framework ◽  
Spot Price ◽  
Random Yield ◽  
Product Demand ◽  
Option Contracts ◽  
Option Contract ◽  
Component Supplier ◽  
Optimal Ordering ◽  
Analytical Expressions

Uncertainties in product demand, component yield, and spot price are keys to many industrial settings and they are usually explicitly incorporated. This paper develops an analytical framework to value option contracts in hedging the risks in a supply chain consisting of a component supplier with random yield and a manufacturer facing stochastic demand for end products. The manufacturer can obtain the components from the supplier through firm order contracts and option contracts. Apart from the contract market, there is a spot market in which both the manufacturer and the supplier can buy or sell the components. Analytical expressions for the optimal ordering and production policies are derived. Our study shows that the manufacturer and the supplier can effectively deal with the risks they involve by adopting option contracts. However, we find that the supply chain cannot be coordinated by the traditional option contract. To coordinate such system, we propose a protocol to be combined with the option contract. Finally, the explicit condition for coordination under the proposed contracts is identified.

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