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Option and forward contracting with asymmetric information: Valuation issues in supply chains. (English) Zbl 1157.90392

Summary: We investigate the role of forward commitments and option contracts between a seller (supplier) and a buyer (retailer) in the presence of asymmetric information. In our case, both parties face price and demand uncertainty but the retailer, being closer to the market, has additional information about the true demand and price. The supplier, aware of this asymmetry, and acting as a Stackelberg leader, designs a contracting arrangement that best meet his interest. We contrast the role of forward and option contracts in this environment and identify cases where combinations of the two are dominant. Finally, we investigate how alternative contracting arrangements alter the expected value of obtaining information that eliminates asymmetric information.

MSC:

90B30 Production models
90B10 Deterministic network models in operations research
91B24 Microeconomic theory (price theory and economic markets)
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