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Supply Chain Coordination with a Risk-Averse Retailer and the Call Option Contract in the Presence of a Service Requirement

Author

Listed:
  • Han Zhao

    (Department of Finance and Audit, Army Logistics Academy, Chongqing 401311, China)

  • Hui Wang

    (Department of Finance and Audit, Army Logistics Academy, Chongqing 401311, China)

  • Wei Liu

    (Department of Basic Science, Wuhan Donghu University, Wuhan 430212, China)

  • Shiji Song

    (Department of Automation, Tsinghua University, Beijing 100084, China)

  • Yu Liao

    (Department of Basic Science, Army Logistics University, Chongqing 401311, China)

Abstract

This paper investigates a supply chain consisting of a single risk-neutral supplier and a single risk-averse retailer with the call option contract and a service requirement, where the retailer’s objective is to maximize the Conditional Value-at-Risk about profit. The optimal ordering quantity of the retailer and the optimal production quantity of the supplier are derived with the call option contract in the presence of a service requirement. Furthermore, by investigating the effect of the service level and the risk aversion on the supply chain, it is found that the retailer’s optimal Conditional Value-at-Risk is non-increasing in the service requirement and increasing in the risk aversion, while the supplier’s optimal expected profit is non-decreasing in the service and decreasing in the risk aversion. In addition, this paper demonstrates the impact of contract parameters on the service-constrained supply chain, and finds that the retailer’s optimal Conditional Value-at-Risk may be increasing, constant or decreasing in unit exercise price. Finally, with the call option contract, a distribution-free coordination condition is derived to achieve the Pareto improvement under Conditional Value-at-Risk criterion in the presence of a service requirement.

Suggested Citation

  • Han Zhao & Hui Wang & Wei Liu & Shiji Song & Yu Liao, 2021. "Supply Chain Coordination with a Risk-Averse Retailer and the Call Option Contract in the Presence of a Service Requirement," Mathematics, MDPI, vol. 9(7), pages 1-19, April.
    • Handle: RePEc:gam:jmathe:v:9:y:2021:i:7:p:787-:d:530780
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    References listed on IDEAS

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    2. Aijun Liu & Dengxue Li & Miao Jie & Zengxian Li, 2022. "Coordination through revenue sharing contract in an E‐commerce supply chain with consumer preference," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 43(6), pages 2467-2479, September.

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