Options Procurement Policy for Option Contracts with Supply and Spot Market Uncertainty. (1st July 2014)

• Record Type: Journal Article
• Authors: Xue, Weili; Xu, Xiaolin; Ma, Lijun
• Other Names: Li Xiang Academic Editor.
• Is Part Of: Discrete dynamics in nature and society. Volume 2014(2014)
• Publication Date: 2014-07-01
• Subjects: System analysis -- Periodicals; Dynamics -- Periodicals; Chaotic behavior in systems -- Periodicals; Differentiable dynamical systems -- Periodicals; 003.05
• DOI: 10.1155/2014/906739
• Languages: English
• ISSNs: 1026-0226

Abstract

Abstract : 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.