Coordination of Supply Chains with Bidirectional Option Contracts

Yingxue Zhao, Xiaoge Meng, Shouyang Wang and T. C. Edwin Cheng
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Yingxue Zhao: University of International Business and Economics
Xiaoge Meng: Beijing University of Aeronautics and Astronautics
Shouyang Wang: Academy of Mathematics and Systems Science
T. C. Edwin Cheng: The Hong Kong Polytechnic University

Chapter Chapter 5 in Contract Analysis and Design for Supply Chains with Stochastic Demand, 2016, pp 115-129 from Springer

Abstract: Abstract Chapter 5 extends the concept of single directional option to develop a supply contract for a two-echelon manufacturer-retailer supply chain with a bidirectional option for which it may be exercised as either a call option or a put option. With a general demand distribution, the research derives closed-form expressions for the retailers optimal order strategies under the bidirectional option contract, including the optimal initial order strategy and the optimal option purchasing strategy. The research also analytically examines the feedback effects of the bidirectional option on the retailers initial order strategy. In addition, a chain-wide perspective is taken to explore how the bidirectional option contract can be designed for supply chain coordination.

Keywords: Supply Chain; Option Price; Call Option; Spot Market; Option Contract (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/978-1-4899-7633-8_5

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