Procurement with Stochastic Costs
This section investigates a commodity procurement problem with operational and financial instruments as two-period, stochastic program in order to determine the influence of risk-aversion when the demand and the procurement price are uncertain. This modelling approach is appropriate in order to draw analytical conclusions. The operational instruments are advance procurement before demand has realized using a warehouse and spot market procurement (JIT-procurement) after the realization of demand. Procurement via financial instruments addresses commodity option contracts. The commodity is traded at a spot market with deterministic current and uncertain future purchasing price. Besides the spot market, there is a derivative market where call option contracts (cp. Section 2.1.3) on the commodity are traded. Both the spot and the derivative market are characterized by arbitrage-free commodity prices (cp. Section 2.1.2).
KeywordsSpot Market Option Contract Cournot Competition Price Risk Inventory Holding
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