Options Procurement Policy for Option Contracts with Supply and Spot Market Uncertainty
Supplier’s reliability is a major issue in procurement management. In this paper, we establish a decision making model from the perspective of the firm who will procure from the multiple suppliers and the spot markets. The suppliers are unreliable and provide different types of option-type supply co...
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| Format: | Article |
| Language: | English |
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Wiley
2014-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2014/906739 |
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| _version_ | 1850168338587582464 |
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| author | Weili Xue Xiaolin Xu Lijun Ma |
| author_facet | Weili Xue Xiaolin Xu Lijun Ma |
| author_sort | Weili Xue |
| collection | DOAJ |
| description | Supplier’s reliability is a major issue in procurement management. In this paper, we establish a decision making model from the perspective of the firm who will procure from the multiple suppliers and the spot markets. The suppliers are unreliable and provide different types of option-type supply contracts which should be made before demand realization, while the spot market can only be used after demand realization and has both the price and liquidity risks. We establish the optimal portfolio policies for the firm with conditions to find the qualified suppliers. By defining a new function which contains the demand risk, the supplier’s risk, and the liquidity risk, we find that the optimal policy is to allocate different curves of this function to different suppliers. We also study some special cases to derive some managerial insights. At last, we numerically study how the various risks affect the choice of suppliers and the value of the option contract. |
| format | Article |
| id | doaj-art-d8ccc6e84e9c4d7d821c6a06ca720ae4 |
| institution | OA Journals |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2014-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-d8ccc6e84e9c4d7d821c6a06ca720ae42025-08-20T02:20:58ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2014-01-01201410.1155/2014/906739906739Options Procurement Policy for Option Contracts with Supply and Spot Market UncertaintyWeili Xue0Xiaolin Xu1Lijun Ma2School of Economics and Management, Southeast University, Nanjing 210096, ChinaSchool of Business, Nanjing University, Nanjing 210093, ChinaDepartment of Management Science, Shenzhen University, Shenzhen 518060, ChinaSupplier’s reliability is a major issue in procurement management. In this paper, we establish a decision making model from the perspective of the firm who will procure from the multiple suppliers and the spot markets. The suppliers are unreliable and provide different types of option-type supply contracts which should be made before demand realization, while the spot market can only be used after demand realization and has both the price and liquidity risks. We establish the optimal portfolio policies for the firm with conditions to find the qualified suppliers. By defining a new function which contains the demand risk, the supplier’s risk, and the liquidity risk, we find that the optimal policy is to allocate different curves of this function to different suppliers. We also study some special cases to derive some managerial insights. At last, we numerically study how the various risks affect the choice of suppliers and the value of the option contract.http://dx.doi.org/10.1155/2014/906739 |
| spellingShingle | Weili Xue Xiaolin Xu Lijun Ma Options Procurement Policy for Option Contracts with Supply and Spot Market Uncertainty Discrete Dynamics in Nature and Society |
| title | Options Procurement Policy for Option Contracts with Supply and Spot Market Uncertainty |
| title_full | Options Procurement Policy for Option Contracts with Supply and Spot Market Uncertainty |
| title_fullStr | Options Procurement Policy for Option Contracts with Supply and Spot Market Uncertainty |
| title_full_unstemmed | Options Procurement Policy for Option Contracts with Supply and Spot Market Uncertainty |
| title_short | Options Procurement Policy for Option Contracts with Supply and Spot Market Uncertainty |
| title_sort | options procurement policy for option contracts with supply and spot market uncertainty |
| url | http://dx.doi.org/10.1155/2014/906739 |
| work_keys_str_mv | AT weilixue optionsprocurementpolicyforoptioncontractswithsupplyandspotmarketuncertainty AT xiaolinxu optionsprocurementpolicyforoptioncontractswithsupplyandspotmarketuncertainty AT lijunma optionsprocurementpolicyforoptioncontractswithsupplyandspotmarketuncertainty |