Please use this identifier to cite or link to this item:
Title: Supply chain management using put option contracts with information asymmetry
Authors: Basu, Preetam
Liu, Qindong
Stallaert, Jan I.A.
Keywords: Buyback contracts
Put option
Risk management
Supply chain management
Issue Date: 2019
Publisher: SCOPUS
International Journal of Production Research
Taylor and Francis Ltd.
Series/Report no.: 57(6)
Abstract: We study the problem of hedging demand uncertainty in a supply chain consisting of a risk-neutral supplier and a risk-averse retailer under a buyback contract. We use semi-variance of the possible profit values as a measure of the retailer�s risk attitude. We first study the setting where the supplier can observe the risk type of the retailer and find that in this case the supplier can design a buyback contract that extracts the maximum profit for the supplier. When the retailer�s type is unobservable, a new contract needs to be designed (the �option buyback contract�) and we show that in this case the retailers will self-select and chose an order quantity that maximises the total supply chain profit. Through numerical computations, we analyse the dynamics between the benefits of hedging risk, information rent and the retailer�s type, and outline cases when, depending on the shape of the reservation utilities of the retailers, it is too costly for the supplier to manage risk. In conclusion, our results show that whereas semi-variance has appealing properties as a measure of risk, its use introduces analytical challenges that can only be overcome through numerical computation.
Description: Basu, Preetam, Operations Management Group, Indian Institute of Management Calcutta, Joka, Kolkata 700104, India; Liu, Qindong, Institutional Research–Strategy, Sanford C. Bernstein & Co., LLC, New York, NY 10105, United States; Stallaert, Jan I.A., Operations and Information Management, School of Business, University of Connecticut, Storrs, CT 06269, United States
ISSN/ISBN - 00207543
DOI - 10.1080/00207543.2018.1508900
Appears in Collections:Operations Management

Files in This Item:
There are no files associated with this item.

Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.