Effects of risk aversion and decision preference on equilibriums in supply chain finance incorporating bank credit with credit guarantee. (27th July 2017)

• Record Type: Journal Article
• Authors: Yan, Nina; Liu, Chongqing; Liu, Ye; Sun, Baowen
• Is Part Of: Applied stochastic models in business and industry. Volume 33:Number 6(2017)
• Page Start: 602
• Page End: 625
• Publication Date: 2017-07-27
• Subjects: conditional value‐at‐risk (CVaR) -- credit guarantee -- decision‐making preference -- risk aversion -- supply chain finance; Stochastic analysis -- Periodicals; Stochastic processes -- Periodicals; Business mathematics -- Periodicals; Finance -- Mathematical models -- Periodicals; Industrial management -- Mathematical models -- Periodicals; 338.00151923
• DOI: 10.1002/asmb.2264
• Languages: English
• ISSNs: 1524-1904

Abstract

Abstract : We constructed a Stackelberg game in a supply chain finance (SCF) system including a manufacturer, a capital‐constrained retailer, and a bank that provides loans on the basis of the manufacturer's credit guarantee. To emphasize the financial service providers' risks, we assumed that both the bank and the manufacturer are risk‐averse and formulated trade‐off objective functions for both of them as the convex combination of the expected profit and conditional value‐at‐risk. To explore the effects of the risk preferences and decision preferences on SCF equilibriums, we mathematically analyzed the optimal order quantities, wholesale prices, and interest rates under different risk preference scenarios and performed numerical analyses to quantify the effects. We found that incorporating bank credit with a credit guarantee can effectively balance the retailer's financing risk between the bank and the manufacturer through interest rate charging and wholesale pricing. Moreover, SCF equilibriums with risk aversion are highly affected by the degree of both the lender's and guarantor's risk tolerance in regard to the borrower's default probability and will be more conservative than those in the risk‐neutral cases that only maximize expected profit.