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A Relief Supplies Purchasing Model Based on Bidirectional Option Contract

In: Liss 2023

Author

Listed:
  • Fei Luo

    (Beijing Jiaotong University)

  • Xianliang Shi

    (Beijing Jiaotong University)

Abstract

Due to the uncertainty in the demand for relief supplies after a disaster, the government always faces the double risk of inventory buildup and shortages. Based on this, this paper constructs a relief supplies purchasing model based on bidirectional option contract consisting of the government and two suppliers, taking into account the probability of a disaster striking. We derive the optimal decision on the quantity of relief supplies at the beginning of the reserve period and the quantity of options sold by the two suppliers, analyze the parameter conditions to achieve supply chain coordination, and compare it with the separate government reserve model. We find that the bidirectional option model both increases the total quantity of government relief supplies reserves and reduces the risk of actual government storage of relief supplies. Finally, the numerical illustration and sensitivity analysis is performed to the bidirectional contract can be a win-win for government and suppliers, and the prepositioning quantity is positively related to the call option execution price and the put option execution price.

Suggested Citation

  • Fei Luo & Xianliang Shi, 2024. "A Relief Supplies Purchasing Model Based on Bidirectional Option Contract," Lecture Notes in Operations Research, in: Daqing Gong & Yixuan Ma & Xiaowen Fu & Juliang Zhang & Xiaopu Shang (ed.), Liss 2023, pages 493-508, Springer.
    • Handle: RePEc:spr:lnopch:978-981-97-4045-1_38
    DOI: 10.1007/978-981-97-4045-1_38
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