Mixed contracts for the newsvendor problem with real options and discrete demand

Kurt Jörnsten, Sigrid Lise Nonås, Leif Sandal () and Jan Ubøe

Omega, 2013, vol. 41, issue 5, 809-819

Abstract: In this paper we consider the newsvendor model with real options under discrete demand. We consider a mixed contract where the retailer can order a combination of q units subject to the conditions in a classical newsvendor contract and Q real options on the same items. We provide a closed form solution to this mixed contract when the demand is discrete and study some of its properties. In particular we demonstrate that a mixed contract may be superior to a real option contract when a manufacturer has a bound on how much variance she is willing to accept.

Keywords: Newsvendor model; Real options; Discrete demand; Mixed contract (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11)

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DOI: 10.1016/j.omega.2012.10.011

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