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A Value-Based Approach to Option Pricing: The Case of Supply Chain Options

  • Yingxue Zhao
  • Xiaoge Meng
  • Shouyang Wang
  • T. C. Edwin Cheng
Part of the International Series in Operations Research & Management Science book series (ISOR, volume 234)

Abstract

Chapter 6 explores the pricing issue for supply chain options. In classical research, this issue is generally considered in the Stackelberg game framework. Such a pricing scheme, however, is usually unacceptable to the follower since the leader always captures all the surplus derived from the options. Being different from the existing literature, this chapter develops a value-based pricing scheme for supply chain options with two modeling scenarios including a single retailer and multiple retailers. The intuition behind such a pricing scheme is to price the option based on the value inherent in the option right. As shown in the research, such a pricing scheme can assure that each of the contracting partners captures a share of the surplus derived from the options. As a result, the pricing schemes developed in this chapter are more objective and fair and consequently are more likely to be accepted by the contracting partners as compared with those that follow the Stackelberg game approach.

Keywords

Supply Chain Option Price Price Scheme Spot Market Stackelberg Game 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Copyright information

© Springer Science+Business Media New York 2016

Authors and Affiliations

  • Yingxue Zhao
    • 1
  • Xiaoge Meng
    • 2
  • Shouyang Wang
    • 3
  • T. C. Edwin Cheng
    • 4
  1. 1.School of International Trade and EconomicsUniversity of International Business and EconomicsBeijingChina
  2. 2.School of Economics and ManagementBeijing University of Aeronautics and AstronauticsBeijingChina
  3. 3.Chinese Academy of SciencesAcademy of Mathematics and Systems ScienceBeijingChina
  4. 4.Department of Logistics and Maritime StudiesThe Hong Kong Polytechnic UniversityHung HomHong Kong SAR

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