Option Contract Design and Risk Analysis: Supplier’s Perspective

Yi Feng and Qing Wu ()
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Yi Feng: School of Management and Economics, University of Electronic Science and Technology of China, Chengdu, Sichuan 610054, P. R. China
Qing Wu: School of Management and Economics, University of Electronic Science and Technology of China, Chengdu, Sichuan 610054, P. R. China

Asia-Pacific Journal of Operational Research (APJOR), 2018, vol. 35, issue 03, 1-13

Abstract: We examine an option contract from a supplier’s perspective and apply mean-variance method to analyze the supplier’s risk. Compared with the newsvendor model without an option contract, we theoretically prove that the option contract can also benefit the supplier. We find for a given option exercise price, there exists an option price such that the contract with the option price dominates those with smaller option price in terms of mean variance of the supplier’s profit. Computational studies have also been conducted in the paper.

Keywords: Options; mean-variance; risk analysis (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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DOI: 10.1142/S0217595918500173

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