Contingent Claims Analysis For Inventory Optimal Decision-making Under Uncertain Demand

This article is about the inventory optimization problem of the solution and analysis.Inventory optimization in the supply chain has been an important topic of research for scholars from all walks of life.The optimization of inventory decisions can not only reduce the overall cost of individual enterprises,but also improve the effectiveness of the entire supply chain,which makes it particularly important to study inventory optimization.With the globalization of the economy,the risks faced in the ever-changing market are endless,and the uncertain future demand determines the supplier’s revenue,which further affects the decision of the whole supply chain.The model mainly considers the following basic elements:(1)operations managers face the risk from demand and use the method of contingent claims to model the demand risk;(2)increase available inventory flexibility by ordering option contracts to hedge future demand risks;(3)using option pricing to price the net present value of earnings.This paper is an extension of the relevant literature on solving the uncertainty problem of contingent claims in inventory management.The effects of demand risk and yield on optimal inventory decision are analyzed in detail.The following novel conclusions are drawn:(1)The higher the risk of demand or the lower the yield,the more obvious the advantage of the option contract.Firms with higher productivity invest more when the risk is high,while those with lower productivity invest less.(2)Although the optimal decision quantity increases with risk-free return,the net present value of return is almost not affected by risk-free return;(3)Surprisingly,under this modeling method,the optimal input amount is not affected by the sales price,but the sales price only affects the optimal order amount of the option contract.This paper also studies the problem of supply chain coordination based on contingent claims by extending from a single retailer to a single supplier and retailer.The results show that when the other variables are exogenous,the wholesale price that makes supply chain coordination is unique.This is a relatively unique insight in this article.