scholarly journals Optimal Pricing and Ordering Strategies with a Flexible Return Strategy under Uncertainty

Mathematics ◽  
2021 ◽  
Vol 9 (17) ◽  
pp. 2097
Author(s):  
Pan Guo ◽  
Yanlin Jia ◽  
Junwei Gan ◽  
Xiaofeng Li
Keyword(s):  
Supply Chain ◽  
Demand Uncertainty ◽  
Optimal Pricing ◽  
Supply Chain Risk ◽  
Put Options ◽  
Put Option ◽  
Numerical Studies ◽  
Exercise Price ◽  
Power Of Choice ◽  
Ordering Strategies

To coordinate the supply chain risk caused by demand uncertainty, this paper proposed a flexible return strategy under demand uncertainty, in which the retailer can choose return quantity independently by put option after the selling season, while the return quantity is usually determined by the supplier in the classical return strategy. In our novel return strategy, the exercise price is not fixed, and we developed the base model of this strategy, named the selective buyback contracts model. We have solved the optimal pricing and ordering strategies of supply chain members. Numerical studies demonstrated that the contracts can coordinate a supply chain with one retailer and one supplier, and the supplier can adjust the profit distribution of the supply chain by adjusting the option exercise price. Compared with other return strategies, the selective buyback contracts give the retailer more power of choice, and the supplier receives risk compensation from the put options.

Using put option contracts in supply chains to manage demand and supply uncertainty

2018 ◽  
Vol 118 (7) ◽  
pp. 1477-1497 ◽  
Author(s):  
Jiarong Luo ◽  
Xiaolin Zhang ◽  
Chong Wang
Keyword(s):  
Supply Chain ◽  
Supply Chain Coordination ◽  
Optimization Theory ◽  
Random Yield ◽  
Supply Uncertainty ◽  
Inventory Theory ◽  
Content Type ◽  
Put Options ◽  
Option Contracts ◽  
Put Option

Purpose The purpose of this paper is to value put option contracts in hedging the risks in a supply chain consisting of a component supplier with random yield and a manufacturer facing stochastic demand for end products. Design/methodology/approach This paper adopts stochastic inventory theory, game theory, optimization theory and algorithm and MATLAB numerical simulation to investigate the manufacturer’s ordering and the supplier’s production strategies, and to study the coordination and optimization strategies in the context of random yield and demand. Findings The authors find that put options can not only facilitate the manufacturer’s order but also the supplier’s production, that is, the manufacturer and the supplier can effectively manage their involved risks and earn more expected profits by adopting put options. Further, the authors find that the single put option contract fails to coordinate such a supply chain. However, when combined with a protocol, it is able to coordinate the supply chain. Originality/value This paper is the first effort to study the intersection of put option contracts and random yield in the presence of a spot market. From a new perspective, the authors explore the supply chain coordination. The authors propose a mechanism to coordinate the supply chain under put option contracts.

scholarly journals Blockchain Traceability Valuation for Perishable Agricultural Products Under Demand Uncertainty

2020 ◽  
Vol 11 (4) ◽  
pp. 1-32
Author(s):  
Zhuoyi Zhao ◽  
K. Jo Min
Keyword(s):  
Supply Chain ◽  
Health Risks ◽  
Demand Uncertainty ◽  
Information Management System ◽  
Agricultural Products ◽  
Policy Implications ◽  
Brownian Motion Process ◽  
Expected Time ◽  
Numerical Studies ◽  
Motion Process

Various perishable agricultural products are recalled due to harmful health risks. Blockchain has been used to reduce the amount of such products wasted and disposed. Specifically, a supply chain with a wholesaler, a retailer, and customers is considered where the retailer decides when to switch from a conventional supply chain information management system (SCIMS) to a blockchain-based SCIMS. This article models the uncertain customers' demand as a geometric Brownian motion process and shows how to obtain the optimal demand threshold above which the switch occurs and the corresponding expected time. Next, the model is extended by incorporating two types of government subsidies (i.e., a fixed subsidy on the switching cost and a variable subsidy per unit demand). Through sensitivity analysis and numerical studies, the impacts of key parameters on the optimal demand threshold and expected time of switching are presented. Finally, managerial insights and policy implications are derived.

scholarly journals Impacts of put option contract and supply chain structure in a multi-period supply chain with uncertain demand

2020 ◽  
Author(s):  
Nana Wan ◽  
Jianchang Fan
Keyword(s):  
Supply Chain ◽  
Option Price ◽  
Service Level ◽  
Chain Structure ◽  
Approximate Algorithm ◽  
Put Option ◽  
Option Contract ◽  
Exercise Price ◽  
Total Profit ◽  
Supply Chain Structure

This paper builds the multi-period optimization models that incorporate put option contract and two supply chain structures to determine the production decision for a supplier and the ordering decision for a manufacturer in a two-stage supply chain. This paper applies the method of dynamic programming to derive the structures of optimal policies and provides an approximate algorithm to evaluate the myopic policies. This paper also conducts numerical examples to illustrate the impacts of put option contract, supply chain structure and demand risk on the members’ decisions and total profits as well as the channel’s total profit. The results indicate that put option contract can motivate to increase the channel’s service level and reduce the manufacturer’s inventory risk under two supply chain structures, when compared to the case without put option contract. In the manufacturer-led structure, the channel always benefits from put option contract, the supplier benefits from put option contract with a high option price and a low exercise price, while the manufacturer benefits from put option contract with a low option price and a high exercise price. In the supplier-led structure, the channel and the manufacturer always benefit from put option contract, while the supplier benefits from put option contract with a high option price and a low exercise price. With put option contract, the supplier is more profitable in the manufacturer-led structure than in the supplier-led structure, while the manufacturer and the channel are more profitable in the supplier-led structure than in the manufacturer-led structure. Without and with put option contract, the optimal total profits of two members and the channel will first decrease and then increase in the demand risk. Finally, this paper identifies the explicit conditions under which the multi-period supply chain can be coordinated via put option contract under two supply chain structures. With a coordinating contract, the supplier and the manufacturer are better off compared to the case without put option contract.

Pricing and Inventory Strategy of Dual-channel Supply Chain under Random Demand and Retailer's Capital Constraint

2015 ◽  
Vol 9 (1) ◽  
pp. 30-46 ◽  
Author(s):  
Hehua Fan ◽  
Yongwei Zhou
Keyword(s):  
Supply Chain ◽  
Demand Uncertainty ◽  
Distribution Channels ◽  
Optimal Pricing ◽  
Supply Chain System ◽  
Profit Model ◽  
Chain System ◽  
Dual Channel ◽  
Inventory Strategy ◽  
Dual Channel Supply Chain

A dual-channel supply chain system composed of one manufacturer and one retailer is considered in this paper, which existed uncertainty demands in both distribution channels and capital constraint on retailer. It set up the profit model of manufacturer dominated dual-channel supply chain system, studied to the optimal pricing and inventory strategies of decentralized and centralized supply chain, obtained the optimal pricing and inventory strategy of the two kinds of supply chain system. The analysis to the optimal solution indicated that the demand uncertainty of two distribution channels, deferred-payment rate etc, are all have certain influence relation on the pricing strategies of manufacturer and retailer. Numerical experiment has showed the effectiveness of the conclusions.

SHOULD AN AMERICAN OPTION BE EXERCISED EARLIER OR LATER IF VOLATILITY IS NOT ASSUMED TO BE A CONSTANT?

2011 ◽  
Vol 14 (08) ◽  
pp. 1279-1297 ◽  
Author(s):  
SONG-PING ZHU ◽  
WEN-TING CHEN
Keyword(s):  
Stochastic Volatility ◽  
Option Price ◽  
Stochastic Volatility Model ◽  
Heston Model ◽  
Put Options ◽  
American Put Option ◽  
Put Option ◽  
Exercise Price ◽  
Volatility Model ◽  
American Put

In this paper, we present a correction to Merton (1973)'s well-known classical case of pricing perpetual American put options by considering the same pricing problem under a stochastic volatility model with the assumption that the volatility is slowly varying. Two analytic formulae for the option price and the optimal exercise price of a perpetual American put option are derived, respectively. Upon comparing the results obtained from our analytic approximations with those calculated by a spectral collocation method, it is shown that our current approximation formulae provide fast and reasonably accurate numerical values of both option price and the optimal exercise price of a perpetual American put option, within the validity of the assumption we have made for the asymptotic expansion. We shall also show that the range of applicability of our formulae is remarkably wider than it was initially aimed for, after the original assumption on the order of the "volatility of volatility" being somewhat relaxed. Based on the newly-derived formulae, the quantitative effect of the stochastic volatility on the optimal exercise strategy of a perpetual American put option has also been discussed. A most noticeable and interesting result is that there is a special cut-off value for the spot variance, below which a perpetual American put option priced under the Heston model should be held longer than the case of the same option priced under the traditional Black-Scholes model, when the price of the underlying is falling.

scholarly journals Effect of Additional Order in Two-Stage Supply Chain Contract under the Demand Uncertainty

Computation ◽  
2021 ◽  
Vol 9 (3) ◽  
pp. 37
Author(s):  
Suphannee Chueanun ◽  
Rawee Suwandechochai
Keyword(s):  
Sensitivity Analysis ◽  
Supply Chain ◽  
Demand Uncertainty ◽  
Two Stage ◽  
Supply Chain Contract ◽  
Decentralized System ◽  
Numerical Studies ◽  
Total Profit ◽  
Buyback Contract ◽  
The Impact

In this work, mathematical models are formulated in order to investigate the effect of the additional order on the expected total profit of a two-stage supply chain. A multi-period buyback contract between a supplier and a retailer under the demand uncertainty is considered. Under the contract, an advance order is submitted to the supplier in advance when the demand is unknown, and an additional order can be made at the beginning of each period after the previous period demand is realized. The impact of the coordination on the supply chain’s expected total profit is also considered. The results show that the additional order does not always increases the supply chain profit. The additional order increases the supply chain profit only when both the retailer and supplier are coordinated. Under the decentralized system with the buyback contract, the retailer tends to order less in an advance order to reduce the risk. This leads to the higher cost due the additional order after the demand is realized. As a result, it is lowers the supply chain profit. Moreover, the sensitivity analysis is performed using numerical studies in order to observe the behavior of the expected total profit of the supply chain.

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