scholarly journals Supply Chain Coordination with a Risk-Averse Retailer and the Call Option Contract in the Presence of a Service Requirement

Mathematics ◽  
2021 ◽  
Vol 9 (7) ◽  
pp. 787
Author(s):  
Han Zhao ◽  
Hui Wang ◽  
Wei Liu ◽  
Shiji Song ◽  
Yu Liao
Keyword(s):  
At Risk ◽  
Supply Chain ◽  
Risk Aversion ◽  
Value At Risk ◽  
Conditional Value At Risk ◽  
Risk Averse ◽  
Call Option ◽  
Service Requirement ◽  
Option Contract ◽  
The Impact

This paper investigates a supply chain consisting of a single risk-neutral supplier and a single risk-averse retailer with the call option contract and a service requirement, where the retailer’s objective is to maximize the Conditional Value-at-Risk about profit. The optimal ordering quantity of the retailer and the optimal production quantity of the supplier are derived with the call option contract in the presence of a service requirement. Furthermore, by investigating the effect of the service level and the risk aversion on the supply chain, it is found that the retailer’s optimal Conditional Value-at-Risk is non-increasing in the service requirement and increasing in the risk aversion, while the supplier’s optimal expected profit is non-decreasing in the service and decreasing in the risk aversion. In addition, this paper demonstrates the impact of contract parameters on the service-constrained supply chain, and finds that the retailer’s optimal Conditional Value-at-Risk may be increasing, constant or decreasing in unit exercise price. Finally, with the call option contract, a distribution-free coordination condition is derived to achieve the Pareto improvement under Conditional Value-at-Risk criterion in the presence of a service requirement.

Coordinating Supply Chain with Buy-Back Contracts in the Presence of Risk Aversion

2018 ◽  
Vol 35 (02) ◽  
pp. 1840008 ◽  
Author(s):  
Chunlin Luo ◽  
Xin Tian ◽  
Xiaobing Mao ◽  
Qiang Cai
Keyword(s):  
Supply Chain ◽  
Risk Aversion ◽  
Value At Risk ◽  
Performance Measure ◽  
Expected Profit ◽  
Conditional Value At Risk ◽  
Allocation Rule ◽  
Risk Averse ◽  
Buy Back ◽  
The Impact

This paper addresses the operational decisions and coordination of the supply chain in the presence of risk aversion, where the risk averse retailer’s performance is measured by a combination of the expected profit and conditional value-at-risk (CVaR). Such performance measure reflects the desire of the retailer to maximize the expected profit on one hand and to control the downside risk of the profit on the other hand. The impact of risk aversion on the supply chain’s decision and performance is also explored. To overcome the inefficiency due to the double marginalization and the aggravation resulting from risk aversion, we investigate the buy-back contract to coordinate the supply chain. Such contract can largely increase the supply chain’s profit, especially when the retailer is more risk averse. Lastly, we extend such risk measure to the widely-used business model nowadays — platform selling model, and explore the impact of the allocation rule on the manufacturer’s decision.

Coordinating Vulnerable Supply Chains with Option Contracts

2021 ◽  
pp. 2050053
Author(s):  
Zhongyi Liu ◽  
Shengya Hua ◽  
Guanying Wang
Keyword(s):  
Supply Chain ◽  
Risk Aversion ◽  
Value At Risk ◽  
Numerical Study ◽  
Supply Chain Coordination ◽  
Wholesale Price ◽  
Conditional Value At Risk ◽  
Option Contract ◽  
Risk Neutral ◽  
Disruption Risk

We investigate vulnerable supply chain coordination with an option contract in the presence of supply chain disruption risk caused by external and internal disturbances. The supply chain consists of a single risk-neutral supplier and a risk-averse retailer. We characterize the retailer’s order quantity decision under the Conditional Value-at-Risk (CVaR) criterion and the supplier’s production decision. The results show that facing disruption risk and risk-aversion, both the retailer and the supplier would be more prudent to order and produce less than the risk-neutral scenario, inducing damage to the supply chain performance. The number of options purchased is decreasing in disruption risk and the risk-aversion of the retailer. The supplier will increase production as the disruption risk decreases or the shortage penalty increases. When the supplier does not know the risk-aversion of the retailer, the former will produce more and bear a higher overstock risk. We also investigate conditions that facilitate vulnerable supply chain coordination and find that the existence of risk-aversion and disruption risk restrict the option price and exercise price to lower price levels. Finally, we compare the option contract with wholesale price contract from the supplier’s and retailer’s perspectives through a numerical study.

Role of Risk Aversion in Price Postponement Under Supply Random Yield

2020 ◽  
Author(s):  
Panos Kouvelis ◽  
Guang Xiao ◽  
Nan Yang
Keyword(s):  
Risk Aversion ◽  
Operations Management ◽  
Value At Risk ◽  
Conditional Value At Risk ◽  
Risk Averse ◽  
Random Yield ◽  
Ex Post ◽  
Responsive Pricing ◽  
Pricing Schemes ◽  
The Impact

Price postponement is an effective mechanism to hedge against the adverse effect of supply random yield. However, its effectiveness and the resulting production decisions have not been studied for risk-averse firms. In this paper, we investigate the impact of price postponement and risk aversion under supply yield risk. Specifically, we study a risk-averse monopoly firm’s production and pricing decisions under supply random yield with two distinct pricing schemes: (1) ex ante pricing in which the firm simultaneously makes the sales price and sourcing decisions before production takes place and (2) responsive pricing in which the pricing decision is postponed until after the production yield realization. We adopt conditional value at risk (CVaR) as the risk-aversion measurement and investigate the impact of the firm’s risk-aversion level on its optimal decisions and the corresponding profit. Among other results, we show that, for each pricing scheme, there exists a unique risk-aversion threshold under which the firm chooses not to produce. Interestingly, price postponement has no impact on the risk-aversion threshold as the cutoff values under both pricing schemes are the same. We further show that the value of CVaR improvement from responsive pricing may not be monotonic in the firm’s risk-aversion level. Consequently, our results indicate that, although price postponement induces operational flexibility by better matching demand with available supply, whether the firm should adopt responsive pricing needs to be carefully evaluated as the benefit may not justify the potential fixed cost associated with price postponement, especially for a highly risk-averse firm. In addition, we show that responsive pricing, even with its ex post revenue-maximization behavior, benefits the end-market consumers in equilibrium. Finally, we conduct extensive numerical studies to check and confirm the robustness of our results. This paper was accepted by Charles Corbett, operations management.

Supply Chain Coordination with a Risk-Averse Retailer and a Combined Buy-Back and Revenue Sharing Contract

2019 ◽  
Vol 36 (05) ◽  
pp. 1950028 ◽  
Author(s):  
Han Zhao ◽  
Shiji Song ◽  
Yuli Zhang ◽  
Jatinder N. D. Gupta ◽  
Anna G. Devlin ◽  
...  
Keyword(s):  
Supply Chain ◽  
Risk Aversion ◽  
Value At Risk ◽  
Numerical Experiments ◽  
Supply Chain Coordination ◽  
Revenue Sharing ◽  
Conditional Value At Risk ◽  
Risk Averse ◽  
Mild Conditions ◽  
Buy Back

This paper investigates the ability of a combined buy-back (BB) and revenue sharing (RS) contract to improve the efficiency of a supply chain involving a risk-neutral supplier and a risk-averse retailer facing stochastic demand. We show that the combined contract can coordinate the supply chain under mild conditions. Further, the effects of risk aversion and contract parameters on the agents’ decision-making are analyzed when the retailer’s risk aversion is modeled by the conditional value-at-risk (CVaR) criterion. In contrast to individual BB and RS contracts, the combined contract is able to mitigate the effect of risk-aversion and allow the supplier to obtain higher expected profit. Moreover, situations exist where the combined contract can coordinate the supply chain when neither the BB nor the RS contract can coordinate it. Numerical experiments conducted further confirm the analytical results derived.

scholarly journals Trade Credit and Revenue Sharing of Supply Chain with a Risk-Averse Retailer

2021 ◽  
Vol 2021 ◽  
pp. 1-15
Author(s):  
Caiyun Liu ◽  
Kebing Chen ◽  
Mingxia Li ◽  
Haijie Zhou
Keyword(s):  
Supply Chain ◽  
Risk Aversion ◽  
Value At Risk ◽  
Trade Credit ◽  
Revenue Sharing ◽  
Conditional Value At Risk ◽  
Optimal Decision ◽  
Risk Averse ◽  
Credit Period ◽  
Optimal Decisions

In this paper, we develop three supply chain game models, i.e., the basic model, the single trade credit model, and the trade credit and revenue sharing collaboration model. Conditional value-at-risk (CVaR) criterion is used as the measure of risk assessment in these models. We analyze the optimal decisions in the centralized and decentralized situations, respectively, and verify that single trade credit cannot coordinate the supply chain. However, the collaboration contract can coordinate the supply chain. Furthermore, this paper explores the influence of risk-aversion factor, trade credit period, revenue sharing coefficient, and other parameters on the optimal decisions and studies the feasible range of Pareto improvement in the collaborative model. In numerical experiments, the results show that the decisions and profits of both the manufacturer and the retailer reply on the degree of the risk aversion, the trade credit period, and the revenue sharing coefficient. The collaborative contract effectively improves supply chain performance and achieves a ‘win-win’ situation for the supply chain members. In addition, we also consider two extensions for our research. One extension shows that the collaborative contract of trade credit and buyback can also coordinate the supply chain in a certain range. The other extension considers the optimal decision of a risk-averse manufacturer with CVaR.

scholarly journals Coordination of Supply Chain with One Supplier and Two Competing Risk-Averse Retailers under an Option Contract

2016 ◽  
Vol 2016 ◽  
pp. 1-11 ◽  
Author(s):  
Rui Wang ◽  
Shiji Song ◽  
Cheng Wu
Keyword(s):  
Supply Chain ◽  
Conditional Value At Risk ◽  
Optimal Order ◽  
Pareto Optimum ◽  
Risk Averse ◽  
Order Quantity ◽  
Supply Chain System ◽  
Chain System ◽  
Option Contract ◽  
Optimal Order Quantity

This paper studies an option contract for coordinating a supply chain comprising one risk-neutral supplier and two risk-averse retailers engaged in promotion competition in the selling season. For a given option contract, in decentralized case, each risk-averse retailer decides the optimal order quantity and the promotion policy by maximizing the conditional value-at-risk of profit. Based on the retailers’ decision, the supplier derives the optimal production policy by maximizing expected profit. In centralized case, the optimal decision of the supply chain system is obtained. Based on the decentralized and centralized decision, we find the coordination conditions of the supply chain system, which can optimize the supply chain system profit and make the profits of the supply chain members achieve Pareto optimum. As for the subchain, we also find the coordination conditions, which generalize the results of the supply chain with one supplier and one retailer. Our analysis and numerical experiments show that there exists a unique Nash equilibrium between two retailers, and the optimal order quantity of each retailer increases (decreases) with its own (competitor’s) promotion level.

ASSET CORRELATIONS IN TURBULENT MARKETS AND THE IMPACT OF DIFFERENT REGIMES ON ASSET MANAGEMENT

2011 ◽  
Vol 28 (01) ◽  
pp. 1-23 ◽  
Author(s):  
GERMAN BERNHART ◽  
STEPHAN HÖCHT ◽  
MICHAEL NEUGEBAUER ◽  
MICHAEL NEUMANN ◽  
RUDI ZAGST
Keyword(s):  
Risk Aversion ◽  
Asset Management ◽  
Value At Risk ◽  
Conditional Value At Risk ◽  
Dependence Structure ◽  
The Us ◽  
The Mean ◽  
Asian Market ◽  
Asset Classes ◽  
The Impact

In this article, the dependence structure of the asset classes stocks, government bonds, and corporate bonds in different market environments and its implications on asset management are investigated for the US, European, and Asian market. Asset returns are modelled by a Markov-switching model which allows for two market regimes with completely different risk-return structures. Using major stock indices from all three regions, calm and turbulent market periods are identified for the time period between 1987 and 2009 and the correlation structures in the respective periods are compared. It turns out that the correlations between as well as within the asset classes under investigation are far from being stable and vary significantly between calm and turbulent market periods as well as in time. It also turns out that the US and European markets are much more integrated than the Asian and US/European ones. Moreover, the Asian market features more and longer turbulence phases. Finally, the impact of these findings is examined in a portfolio optimization context. To accomplish this, a case study using the mean-variance and the mean-conditional-value-at-risk framework as well as two levels of risk aversion is conducted. The results show that an explicit consideration of different market conditions in the modelling framework yields better portfolio performance as well as lower portfolio risk compared to standard approaches. These findings hold true for all investigated optimization frameworks and risk-aversion levels.

scholarly journals Optimal Decisions of a Supply Chain with Two Risk-Averse and Competing Retailers under Random Demand

2013 ◽  
Vol 2013 ◽  
pp. 1-10 ◽  
Author(s):  
Yu-Shuang Liu
Keyword(s):  
Supply Chain ◽  
Risk Aversion ◽  
Conditional Value At Risk ◽  
Stackelberg Games ◽  
Risk Averse ◽  
Demand Model ◽  
Retail Competition ◽  
Decentralized Supply Chain ◽  
Optimal Decisions ◽  
Channel Efficiency

This paper investigates the optimal decisions in a decentralized supply chain consisting of one manufacturer and two competing retailers who face price-sensitive and stochastic demand. The retailers are risk averse with conditional value at risk (CVaR) as their risk measure, and the manufacturer is a risk-neutral agent. We construct manufacturer-Stackelberg games with retailers, who engage in horizontal price competition. For the multiplicative demand model and expected demand as an exponential function of both prices, we show that there exists the optimal pricing-ordering joint decision uniquely. We then explore the influence of the price sensitivity, risk aversion, and retail competition on optimal decisions and channel efficiency. The results show that retail competition contributes to manufacturer and improves channel efficiency of the decentralized supply chain. When the retailers are more risk averse, the channel efficiency becomes much lower. However, the level of retailers’ risk aversion has no significant impact on the manufacturer’s optimal wholesale price and retailer’s optimal selling price.

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