Financial valuation of flexible supply chain contracts
Author
Erön, Ali Gökay
Advisor
Pınar, Mustafa Ç.
Date
2008Publisher
Bilkent University
Language
English
Type
ThesisItem Usage Stats
71
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Abstract
We consider a single buyer - single supplier multiple period quantity flexibility
contract in which the buyer has options to buy in case of a higher than expected
demand in addition to the committed purchases at the beginning of each period of
the contract. We take the buyer’s point of view and find the maximum value of the
contract for the buyer by analyzing the financial and real markets simultaneously.
We assume both markets evolve as discrete scenario trees. Furthermore, under
the assumption that the demand of the item correlates perfectly with the price
of the risky security we present a model to find the buyer’s maximum acceptable
price of the contract. Applying duality, we develop sufficient conditions on some
parameters to decrease the value of the contract. Then, an experimental study
is presented to illustrate the impacts of all the parameters on the value of the
contract and the option. We show that the model can also be extended to the
case of partially correlated demand and the risky asset price under the assumption
that the markets evolve as binomial trees. Finally, we apply duality and perform
numerical analysis for the latter assumption.