Option Pricing with Downward-Sloping Demand Curves: The Case of Supply Chain Options

Apostolos Burnetas
Apostolos Burnetas
[email protected]
Department of Mathematics, University of Athens, Athens 15784, Greece
Search for more papers by this author
,
Peter Ritchken
Peter Ritchken
[email protected]
Department of Banking and Finance, Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, Ohio 44106
Search for more papers by this author

Department of Mathematics, University of Athens, Athens 15784, Greece

Department of Banking and Finance, Weatherhead School of Management, Case Western Reserve University, 10900 Euclid Avenue, Cleveland, Ohio 44106

Search for more papers by this author

Published Online:1 Apr 2005https://doi.org/10.1287/mnsc.1040.0342

Supplemental Material

mnsc.1040.0342-sm-burnetas_ritchken_4_05.pdf (405 KB)

Cited by
- When to introduce options and when not to: a portfolio contract perspective
  15 May 2025 | International Transactions in Operational Research, Vol. 33, No. 6
- A robust booking and pricing strategy for option-spot dual-channel shipping spaces considering shippers’ price reference effects
  Computers & Industrial Engineering, Vol. 212
- Managing Demand and Supply Uncertainty in Relief Supply Chains: The Role of Option Contracts
  IEEE Transactions on Engineering Management, Vol. 73
- The impact of contract types on carbon-capped food supply chains: options versus wholesale
  8 January 2025 | International Journal of Production Research, Vol. 63, No. 13
- Container slot robust booking and pricing strategy of the option-spot dual channel considering partial demand uncertainty
  Transport Economics and Management, Vol. 2
- Managing production and procurement through the put option contract under carbon cap regulation
- A purchaser's optimal procurement strategy under emergencies
  15 April 2024 | International Journal of General Systems, Vol. 22
- Farmers' green technology adoption: Implications from government subsidies and information sharing
  26 September 2023 | Naval Research Logistics (NRL), Vol. 71, No. 2
- Investment Timing Analysis of Hydrogen-Refueling Stations and the Case of China: Independent or Co-Operative Investment?
  28 June 2023 | Energies, Vol. 16, No. 13
- Encroachment in a three-echelon supply chain: manufacturer encroachment or distributor encroachment
  4 January 2022 | Asia Pacific Journal of Marketing and Logistics, Vol. 34, No. 10
- A capacity reservation game for suppliers with multiple blocks of capacity
  Operations Research Letters, Vol. 50, No. 5
- Research on option pricing and coordination mechanism of festival food supply chain
  Socio-Economic Planning Sciences, Vol. 81
- Financing decision for a remanufacturing supply chain with a capital constrained retailer: A study from the perspective of market uncertainty
  International Journal of Production Economics, Vol. 245
- Optimal Policy for Remanufacturing Firms with Carbon Options under Service Requirements
  23 October 2021 | Journal of Systems Science and Systems Engineering, Vol. 31, No. 1
- Specialist or Generalist VC? Financing a Techstar Supply Chain with a Milestone Option
  SSRN Electronic Journal, Vol. 234
- Competitive Option Offerings Under Supply Disruptions
  SSRN Electronic Journal, Vol. 65
- Coordination of Supply Chain of a Three-level Fresh Products Based on Conditional Value at Risk
- A mixed wholesale-option-contract to fix the demand imbalance between substitutable air cargo routes: A cooperative game approach
  Expert Systems with Applications, Vol. 182
- Pricing and ordering strategies in a two-echelon supply chain under price discount policy: a Stackelberg game approach
  23 May 2021 | Journal of Management Analytics, Vol. 8, No. 4
- The implications of contract timing on a supply chain with random yield
  International Journal of Production Economics, Vol. 240
- Competition and coordination for supply chain networks with random yields
  International Journal of Production Economics, Vol. 239
- Specific capacity investment in supply chains
  Omega, Vol. 103
- Multiperiod Portfolio Procurement Problem With Option Contracts
  IEEE Transactions on Engineering Management, Vol. 68, No. 4
- Bidirectional options in random yield supply chains with demand and spot price uncertainty
  24 March 2021 | Annals of Operations Research, Vol. 302, No. 1
- The Interface of Finance, Operations, and Risk Management
  16 June 2021 | Foundations and Trends® in Technology, Information and Operations Management, Vol. 15, No. 1-2
- Stability of Transaction Fees in Bitcoin: A Supply and Demand Perspective
  1 June 2021 | MIS Quarterly, Vol. 45, No. 2
- Two-stage inventory management with financing under demand updates
  International Journal of Production Economics, Vol. 232
- Put Option Contracts in Newsvendor Model with Bankruptcy Risk
  31 August 2021
- The Role of the Abandonment Option in Strategic Resource Allocation: A Selected Review of the Literature
  SSRN Electronic Journal, Vol. 10
- Order allocation model in logistics service supply chain with demand updating and inequity aversion: A perspective of two option contracts comparison
  Journal of Industrial & Management Optimization, Vol. 17, No. 6
- Impact of cap-and-trade regulation on coordinating perishable products supply chain with cost learning
  Journal of Industrial & Management Optimization, Vol. 17, No. 6
- Promoting Solar Panel Investments: Feed-in-Tariff vs. Tax-Rebate Policies
  Volodymyr Babich,
  Ruben Lobel,
  Şafak Yücel
  3 April 2020 | Manufacturing & Service Operations Management, Vol. 22, No. 6
- Option contract strategies with risk‐aversion and emergency purchase
  17 February 2018 | International Transactions in Operational Research, Vol. 27, No. 6
- Coordination in a retailer‐dominated supply chain with a risk‐averse manufacturer under marketing dependency
  26 February 2018 | International Transactions in Operational Research, Vol. 27, No. 6
- Achieving Efficiency in Capacity Procurement
  1 October 2020 | Foundations and Trends® in Technology, Information and Operations Management, Vol. 14, No. 1-2
- Managing the supply disruption risk: option contract or order commitment contract?
  14 August 2018 | Annals of Operations Research, Vol. 291, No. 1-2
- Coordinating supply chains with a risk-averse retailer and a call option contract
- Supply chain coordination with put option contracts and customer returns
  23 April 2019 | Journal of the Operational Research Society, Vol. 71, No. 6
- Warehouse Location in An Emerging Country: A Win–Win Proposition?
  1 June 2020 | Production and Operations Management, Vol. 29, No. 6
- Supply chain coordination with risk-averse retailer and option contract: Supplier-led vs. Retailer-led
  International Journal of Production Economics, Vol. 223
- Optimal advertising outsourcing strategy with different effort levels and uncertain demand
  16 July 2019 | International Journal of Production Research, Vol. 58, No. 7
- Supply chain risk management considering put options and service level constraints
  Computers & Industrial Engineering, Vol. 140
- Operational implications of yield uncertainty in mergers and acquisitions
  International Journal of Production Economics, Vol. 219
- Optimal Pricing and Carbon Emission Abatement Allocation Decisions in Supply Chains With Option Contract
  IEEE Access, Vol. 8
- Foundations and Trends at the Interface of Finance, Operations, and Risk Management
  SSRN Electronic Journal, Vol. 26
- An option mechanism to coordinate a dyadic supply chain bilaterally in a multi-period setting
  Omega, Vol. 88
- Joint logistics and financial services by a 3PL firm: Effects of risk preference and demand volatility
  Transportation Research Part E: Logistics and Transportation Review, Vol. 130
- Sustainable sourcing including capacity reservation for recycled materials: A newsvendor framework with price and demand correlations
  International Journal of Production Economics, Vol. 214
- Is the information of customer types and preferences to personal selling worth the investment in innovative technology? A modeling approach
  Journal of Retailing and Consumer Services, Vol. 49
- The impact of customer returns and bidirectional option contract on refund price and order decisions
  European Journal of Operational Research, Vol. 274, No. 1
- Supply chain management using put option contracts with information asymmetry
  23 August 2018 | International Journal of Production Research, Vol. 57, No. 6
- Financing and ordering strategies for a supply chain under the option contract
  International Journal of Production Economics, Vol. 208
- Optimal Decisions of a Supply Chain With a Risk-Averse Retailer and Portfolio Contracts
  IEEE Access, Vol. 7
- Buyback Contracts with a Stochastic Demand Curve
  SSRN Electronic Journal, Vol. 28
- Inventory policies for two products under Poisson demand: Interaction between demand substitution, limited storage capacity and replenishment time uncertainty
  19 June 2018 | Naval Research Logistics (NRL), Vol. 65, No. 8
- Ore Composition’s Impact on Smelting Profitability: An Optimum Pricing Index Model for Long-Term Nickel Ore Feedstock Purchasing Agreements
  1 November 2018 | Applied Sciences, Vol. 8, No. 11
- Real Options in Operations Research: A Review
  European Journal of Operational Research, Vol. 270, No. 1
- Using put option contracts in supply chains to manage demand and supply uncertainty
  10 July 2018 | Industrial Management & Data Systems, Vol. 118, No. 7
- Gap-alert? Quantity surcharge practices vs. guest expectations
  International Journal of Hospitality Management, Vol. 73
- Option Contracts in a Vertical Industry
  17 October 2017 | The Manchester School, Vol. 86, No. 4
- Supply option contracts with spot market and demand information updating
  European Journal of Operational Research, Vol. 266, No. 3
- Pricing and Low-Carbon Investment Decisions in an Emission Dependent Supply Chain under a Carbon Labelling Scheme
  18 April 2018 | Sustainability, Vol. 10, No. 4
- Portfolio procurement policies for budget-constrained supply chains with option contracts and external financing
  Journal of Industrial and Management Optimization, Vol. 14, No. <![CDATA[3]]>
- Flexibility and coordination in a supply chain with bidirectional option contracts and service requirement
  International Journal of Production Economics, Vol. 193
- Revenue Management and Length-of-Stay-Based Room Pricing
  21 April 2017 | Cornell Hospitality Quarterly, Vol. 58, No. 4
- Mean-risk analysis of wholesale price contracts with stochastic price-dependent demand
  22 August 2014 | Annals of Operations Research, Vol. 257, No. 1-2
- Optimal Option Ordering and Pricing Decisions With Capital Constraint and Default Risk
  IEEE Systems Journal, Vol. 11, No. 3
- Coordination of Cloud Computing Service Supply Chain With Option Contracts
  28 August 2017
- Supplier Competition with Option Contracts for Discrete Blocks of Capacity
  Edward Anderson,
  Bo Chen,
  Lusheng Shao
  20 June 2017 | Operations Research, Vol. 65, No. 4
- Coordinating a trust-embedded two-tier supply chain by options with multiple transaction periods
  4 January 2017 | International Journal of Production Research, Vol. 55, No. 7
- Option pricing and coordination in the fresh produce supply chain with portfolio contracts
  15 March 2016 | Annals of Operations Research, Vol. 248, No. 1-2
- Production and procurement strategies for seasonal product supply chain under yield uncertainty with commitment-option contracts
  International Journal of Production Economics, Vol. 183
- Financing and Ordering Strategies in a Supply Chain with Option Contracts
  SSRN Electronic Journal, Vol. 4
- Impact of reorder option in supply chain coordination
  Journal of Industrial & Management Optimization, Vol. 13, No. 1
- A revenue-sharing option contract toward coordination of supply chains
  International Journal of Production Economics, Vol. 178
- Outsource planning through option contracts with demand and cost uncertainty
  European Journal of Operational Research, Vol. 250, No. 1
- Coordination of Supply Chain with One Supplier and Two Competing Risk-Averse Retailers under an Option Contract
  Mathematical Problems in Engineering, Vol. 2016
- Supply chain finance, interêts et limites
- De l’absence au dilemme de la diversification des fournisseurs dans la gestion du risque de rupture d’approvisionnement des supply chains
- Bibliographie
- Operational Efficacy of 3PL in Reverse Logistics and Closed Loop Supply Chain
- Defining the Black and Scholes approach: a first systematic literature review
  22 January 2016 | Journal of Innovation and Entrepreneurship, Vol. 5, No. 1
- Rewards-supply planning under option contracts in managing coalition loyalty programmes
  24 July 2015 | International Journal of Production Research, Vol. 53, No. 22
- Optimal ordering policy for a price-setting newsvendor with option contracts under demand uncertainty
  25 June 2015 | International Journal of Production Research, Vol. 53, No. 20
- Optimal inventory and hedging decisions with CVaR consideration
  International Journal of Production Economics, Vol. 162
- The loss‐averse newsvendor problem with supply options
  23 December 2014 | Naval Research Logistics (NRL), Vol. 62, No. 1
- Supply chain coordination with dual procurement sources via real-option contract
  Computers & Industrial Engineering, Vol. 80
- Promotion Planning and Supply Chain Contracting in a High–Low Pricing Environment
  1 February 2015 | Production and Operations Management, Vol. 24, No. 2
- Contract Coordination in Dual Sourcing Supply Chain under Supply Disruption Risk
  Mathematical Problems in Engineering, Vol. 2015
- Optimal exercise of jointly held real options: A Nash bargaining approach with value diversion
  European Journal of Operational Research, Vol. 239, No. 2
- Buyback contracts with price-dependent demands: Effects of demand uncertainty
  European Journal of Operational Research, Vol. 239, No. 3
- Optimal Sourcing and Lead‐Time Reduction under Evolutionary Demand Risk
  1 December 2014 | Production and Operations Management, Vol. 23, No. 12
- Futures and Option Contracts of the Supply Chain Influenced by e-Business Market
  23 October 2014 | Asia-Pacific Journal of Operational Research, Vol. 31, No. 05
- Supplier selection problem for a retailer under random yield
  19 September 2014 | Journal of Industrial and Production Engineering, Vol. 31, No. 6
- Commodity options purchasing and credit financing under capital constraint
  International Journal of Production Economics, Vol. 153
- Risk hedging in a supply chain: Option vs. price discount
  International Journal of Production Economics, Vol. 151
- Channel coordination with a loss-averse retailer and option contracts
  International Journal of Production Economics, Vol. 150
- Timing and eco(nomic) efficiency of climate-friendly investments in supply chains
  European Journal of Operational Research, Vol. 233, No. 2
- Mixed contracts for the newsvendor problem with real options and discrete demand
  Omega, Vol. 41, No. 5
- Supply chain networks with global outsourcing and quick-response production under demand and cost uncertainty
  15 October 2011 | Annals of Operations Research, Vol. 208, No. 1
- Coordination of supply chains with bidirectional option contracts
  European Journal of Operational Research, Vol. 229, No. 2
- Procurement risk management using capacitated option contracts with fixed ordering costs
  IIE Transactions, Vol. 45, No. 8
- ON COURNOT COMPETITION UNDER RANDOM YIELD
  6 August 2013 | Asia-Pacific Journal of Operational Research, Vol. 30, No. 04
- A value-based approach to option pricing: The case of supply chain options
  International Journal of Production Economics, Vol. 143, No. 1
- Overview of coordination contracts within forward and reverse supply chains
  Journal of Cleaner Production, Vol. 47
- Dual sourcing using capacity reservation and spot market: Optimal procurement policy and heuristic parameter determination
  European Journal of Operational Research, Vol. 225, No. 2
- An option contract pricing model of relief material supply chain
  Omega, Vol. 40, No. 5
- An analysis of a supply chain with options contracts and service requirements
  IIE Transactions, Vol. 44, No. 10
- Endogenous default risk in supply chain and non-linear pricing
  International Journal of Production Economics, Vol. 139, No. 1
- Supplier diversification under random yield
  International Journal of Production Economics, Vol. 139, No. 1
- Capacity competition under random yield
  Operations Research Letters, Vol. 40, No. 5
- Supply Chain Coordination with Option Contracts in VMI System
  1 February 2012 | Advanced Materials Research, Vol. 482-484
- Exploring Contracts with Options in Loyalty Reward Programs Supply Chain
- Optimal Sourcing and Lead-Time Reduction Under Evolutionary Demand Risk
  SSRN Electronic Journal, Vol. 56
- Capacity Expansion as a Contingent Claim: Flexibility and Real Options in Operations
  11 October 2011
- Financial Valuation of Supply Chain Contracts
  11 October 2011
- Capacity reservation under spot market price uncertainty
  International Journal of Production Economics, Vol. 133, No. 1
- Trading reserved capacity independently among supply chains
  International Journal of Production Economics, Vol. 133, No. 1
- “Supply Chain 2.0”: managing supply chains in the era of turbulence
  International Journal of Physical Distribution & Logistics Management, Vol. 41, No. 1
- An Entrepreneur's Choice between Commitment and Spot Financing
  SSRN Electronic Journal, Vol. 10
- Mixed Contracts for the Newsvendor Problem with Real Options
  SSRN Electronic Journal, Vol. 4
- Analysis of Studies from 2000-2010 in Real Option Theory and Application to OM
  American Journal of Operations Research, Vol. 01, No. 01
- Buyback Contracts with a Stochastic Demand Curve
  SSRN Electronic Journal, Vol. 51
- Contracting in Supply Chains: A Laboratory Investigation
  Elena Katok,
  Diana Yan Wu,
  16 October 2009 | Management Science, Vol. 55, No. 12
- Option and forward contracting with asymmetric information: Valuation issues in supply chains
  European Journal of Operational Research, Vol. 197, No. 1
- Coordination in Supply Chain Management - Review and Identification of Directions for Future Research
  24 July 2009
- Option pricing for inventory management and control
- Lead time decisions under lead-time sensitive demand with demand disruptions
- Profit-sharing mechanisms for the production-distribution alliance
- Priority option pricing in an M/M/m queue
  Operations Research Letters, Vol. 36, No. 6
- The Study of Price Risk Management in Supply Chain Based on Financial Engineering
- Investigating warehousing policies
  International Journal of Production Economics, Vol. 112, No. 2
- Option Contracts in Supply Chains
  30 January 2008 | Journal of Economics & Management Strategy, Vol. 17, No. 1
- Supply chain operations in the presence of a spot market: a review with discussion
  21 December 2017 | Journal of the Operational Research Society, Vol. 58, No. 11
- A comparison of different quantity discount pricing policies in a two-echelon channel with stochastic and asymmetric demand information
  European Journal of Operational Research, Vol. 181, No. 2
- An Option Contract for Coordinating a Supply Chain with Price-dependent Stochastic Demand
- Capacity reservation under supply uncertainty
  Computers & Operations Research, Vol. 34, No. 4
- Value of a put option to the risk-averse newsvendor
  IIE Transactions, Vol. 39, No. 5
- Supply chain information sharing in a macro prediction market
  Decision Support Systems, Vol. 42, No. 3
- Vulnerable options in supply chains: Effects of supplier competition
  28 July 2006 | Naval Research Logistics (NRL), Vol. 53, No. 7
- Unified discount pricing models of a two‐echelon channel with a monopolistic manufacturer and heterogeneous retailers
  9 March 2006 | International Transactions in Operational Research, Vol. 13, No. 2
- Managing Capacity in the High-Tech Industry: A Review of Literature
  24 February 2007 | The Engineering Economist, Vol. 50, No. 2

Volume 51, Issue 4

April 2005

Pages 519-678

Article Information

Supplemental Material

Metrics

Information

Received:December 22, 2003
Published Online:April 01, 2005

Cite as

Apostolos Burnetas, Peter Ritchken, (2005) Option Pricing with Downward-Sloping Demand Curves: The Case of Supply Chain Options. Management Science 51(4):566-580.

https://doi.org/10.1287/mnsc.1040.0342

Keywords

PDF download

Available Issues

Available Issues

Available Issues

Available Issues

Available Issues

Available Issues

Available Issues

Available Issues

Available Issues

Option Pricing with Downward-Sloping Demand Curves: The Case of Supply Chain Options

Supplemental Material

Volume 51, Issue 4

Article Information

Supplemental Material

Metrics

Information

Cite as

Keywords

Sign Up for INFORMS Publications Updates and News