Analysis Of The Value And Risk Of An Option Contact In The Supply Chain

Supply chain is a network system comprised by suppliers, manufacturers, retailers and end-users. The goal for supply chain management is to obtaining competitive advantage by integrating and optimizing the logistics, information flow and cash flow of the system. Since different stakeholders are involved in supply chain and management of the uncertainty of market demand is required, the difficulty of supply chain decisions is raised. In this context, supply-chain risks and the uncertainty of the supply chain has been a hot issue for reserch.This article attempts to introduce the idea of option in the domain of financial derivatives and risk measurement into the supply chain risk management. Setting the short life cycle product supply chain as study object and establishing the risk-neutral supply chain option contract, risk-averse retailer's decision to avoid risk behavior could be analyzed by using traditional risk measurement methods in the model of supply Chain. In this regard, the study summarized as follows:A risk neutral supply chain option contract model and a combination contract model based on options are first established and then compared. The paper also uses the downside risk to describe to the risk confronted by retailers, comparing and analyzing the retailer's various decisions and the corresponding effects on supply chain profit of the risk-neutral and risk-averse case.Then,risk-neutral price-demand related supply chain model of option contract is established, the optimal option price and option exercise price coordinated to the supply chain are given, the validity of the contract is verified through a numerical example. The introduction of mean-variance theory is used for risk-averse retailers and their optimal decision-making behavior as well as influence of the retailer's loss aversion to the supplier and retailer preferences decision-making.