Risk Analysis Of Supply Contract With Call And Put Options For Suppliers

In supply chain with innovative products,there always exists the conflict about the supply and demand between the supplier and the buyer due to the high demand uncertainties.Therefore,the option-based supply contracts have been proposed into the supply chain to improve the expected performance of the supply chain.This paper will study whether the supplier will encounter risk or not after introducing the call option and put option contract into such supply chain.If such risk exists,the how should such risk be assessed specifically.To study such problem,after a brief introduction of these two option models,this paper will make a quantitative study of the supplier's risk.Therefore,a risk model of the supplier is built.Specifically,using newsvendor model as a benchmark,this paper compares the profit difference between the option models and the newsvendor model in the second period.If such difference is negative,there will be risks for the supplier.Furthermore,if risk exists,the probability of such risk will be calculated.Due to the multiple cases from the risk analysis,in which exists the case when the profit difference is negative,a numerical study is provided.Each parameter is assigned a specific numerical value based the assumptions given in the paper.Through the numerical study,the optimal decision of both the supplier and the retailer will be calculated.More importantly,it shows the case when the supplier will encounter risk exists.Meanwhile,the probability of such risk is also calculated.Moreover,this paper also provides the risk comparison analysis of the call and put option model,and derives the different characteristics of these two option contracts for the supplier.