Mixed contracts for the newsvendor problem with real options

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

No 2011/6, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: In this paper we consider the newsvendor model with real options. 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. We also offer an explicit solution for the continuous case. 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)
JEL-codes: C70 D86 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2011-04-06
New Economics Papers: this item is included in nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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