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A note generalizing “an option mechanism to coordinate a dyadic supply chain bilaterally in a multi-period setting”

Berling, Peter LU (2020) In Omega (United Kingdom)
Abstract

The problem investigated in this paper is the one of finding the optimal combination of inventory and options in a stationary multi-period problem with an infinite horizon. The research complements existing literature as it considers the combination of option and wholesale contracts. The paper show how the problem can be transformed to a combination of newsvendor type problems. This alternative interpretation allows us to derive the necessary conditions for the pricing of an option contract that maximizes the system wide profit as well as the conditions for when the different parties will be able to design such a price scheme. It turns out that the possibility to do so depends on where it is optimal to keep inventory and how much... (More)

The problem investigated in this paper is the one of finding the optimal combination of inventory and options in a stationary multi-period problem with an infinite horizon. The research complements existing literature as it considers the combination of option and wholesale contracts. The paper show how the problem can be transformed to a combination of newsvendor type problems. This alternative interpretation allows us to derive the necessary conditions for the pricing of an option contract that maximizes the system wide profit as well as the conditions for when the different parties will be able to design such a price scheme. It turns out that the possibility to do so depends on where it is optimal to keep inventory and how much inventory is kept under the pure wholesale contract. Moreover is it shown that the supply chain optimal solution cannot be guaranteed even if a Central planner prices the option contract.

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Please use this url to cite or link to this publication:
author
organization
publishing date
type
Contribution to journal
publication status
epub
subject
keywords
Finance, Multi-period, Newsvendor, Options, Supply chain coordination
in
Omega (United Kingdom)
article number
102257
publisher
Elsevier
external identifiers
  • scopus:85085664076
ISSN
0305-0483
DOI
10.1016/j.omega.2020.102257
language
English
LU publication?
yes
id
3f7f42ef-c672-48c2-b293-e83b31a63b43
date added to LUP
2020-06-26 15:03:18
date last changed
2020-06-27 01:58:44
@article{3f7f42ef-c672-48c2-b293-e83b31a63b43,
  abstract     = {<p>The problem investigated in this paper is the one of finding the optimal combination of inventory and options in a stationary multi-period problem with an infinite horizon. The research complements existing literature as it considers the combination of option and wholesale contracts. The paper show how the problem can be transformed to a combination of newsvendor type problems. This alternative interpretation allows us to derive the necessary conditions for the pricing of an option contract that maximizes the system wide profit as well as the conditions for when the different parties will be able to design such a price scheme. It turns out that the possibility to do so depends on where it is optimal to keep inventory and how much inventory is kept under the pure wholesale contract. Moreover is it shown that the supply chain optimal solution cannot be guaranteed even if a Central planner prices the option contract.</p>},
  author       = {Berling, Peter},
  issn         = {0305-0483},
  language     = {eng},
  month        = {05},
  publisher    = {Elsevier},
  series       = {Omega (United Kingdom)},
  title        = {A note generalizing “an option mechanism to coordinate a dyadic supply chain bilaterally in a multi-period setting”},
  url          = {http://dx.doi.org/10.1016/j.omega.2020.102257},
  doi          = {10.1016/j.omega.2020.102257},
  year         = {2020},
}