Coordinating operational policy with financial hedging for risk-averse firms

Ni, Jian; Chu, Lap-Keung; Yen, Benjamin P.‐C.

doi:10.1016/j.omega.2015.07.001

Cited by 15 publications

(4 citation statements)

References 27 publications

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“…Moreover, impawn rate optimisation has been extensively investigated, and many beneficial explorations on the volatility and risk management of pledges have already been made (Ni et al, 2016;Zhang et al, 2017;Wang et al, 2018). However, a majority of the literature assumes that the default probability in financial services has no relationship with the changing value of collateral and can be set as a fixed parameter.…”

Section: Background and Research Questionsmentioning

confidence: 99%

Impawn rate optimisation in inventory financing: A canonical vine copula-based approach

Zhi

Wang

2020

International Journal of Production Economics

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In the inventory financing business, an optimal impawn rate (loan-to-value ratio) can help the inventory financing providers (IFPs, she) maintain competitiveness in the inventory financing market. However, the literature has been silent on how IFPs can optimise the business through the optimisation of the impawn rate. This study examines the role of the optimal impawn rate in the inventory financing business. The key to setting the optimal impawn rate is first evaluating default probability and then incorporating this into the profit function. We use a data-driven approach to explore the copula model in setting the optimal impawn rate. Through numerical analysis, we find that the Clayton canonical vine copula has a better performance for the prediction of default probability than the multivariate normal distribution (MVN) and can thus be used to evaluate default probability. In addition, we uncover that setting multiple impawn rates for different collaterals allows inventory financing to yield a higher profit. Further, although the interest rate, industrial impawn rate, and optimal impawn rate have strong effects on inventory financing profit, interestingly, the relationship between them is marginally diminishing.

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Section: Background and Research Questionsmentioning

confidence: 99%

Impawn rate optimisation in inventory financing: A canonical vine copula-based approach

Zhi

Wang

2020

International Journal of Production Economics

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“…Chiu and Choi (2016) buyers. See, e.g., Smith and Stulz (1985), Froot et al (1993), Neuberger (1999), Gaur and Seshadri (2005), Ni et al (2012Ni et al ( , 2016, and Kouvelis et al (2013). However, few researchers have considered the problem from the perspective of the other supply chain parties and/or the entire supply chain, with the possible exception of Caldentey and Haugh (2009) and Turcic et al (2015).…”

Section: Accepted Manuscriptmentioning

confidence: 99%

“…Specially, we let ̅ . Notice that the choice of the risk neutral probability measure with respect to the uncertain demand is not unique because the market is not complete (the uncertain demand is not a random factor that can be fully hedged in the financial market in the proposed model), though the financial market itself is complete; see Ni et al (2016) for a technical discussion. Thus, without loss of generality, one can choose the real-world probability measure as the -measure with respect to the demand uncertainty.…”

Section: Supply Chain Parties' Performancementioning

confidence: 99%

“…However, we note that our model considers both financial risk (stochastic commodity price) and nonfinancial risk (uncertain demand), which means that the market is incomplete and the discounting for risk cannot be fully addressed with the riskneutral measure. Thus, in an incomplete market, it is still necessary to use a utility function to model the retailer"s risk-averse behavior (Ni et al 2016). Alternatively, it would also be interesting to investigate the case where real-world probability measure is employed on both the demand uncertainty and spot prices (Kouvelis et al 2013).…”

Section: Supply Chain Parties' Performancementioning

confidence: 99%

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Buy now and price later: Supply contracts with time-consistent mean–variance financial hedging

Niu

Chu

et al. 2018

European Journal of Operational Research

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We consider a two-stage supply chain comprising one risk-neutral manufacturer (he) and one risk-averse retailer (she), where the manufacturer procures consumption commodities in spot market as major inputs for production and sells the final products to the retailer. The retailer then sells the final products to the market at a stochastic clearance price. We investigate a flexible price contract that allows the manufacturer to determine the product wholesale price, and the retailer to determine the order quantity, based on the future spot price of consumption commodities. Compared with the simple wholesale price contract, a win-win situation can be achieved under the flexible price contract when the manufacturer"s postponed processing cost is lower than a threshold. However, under this flexible price contract the retailer may suffer from the commodity price volatility, even if she does not procure the commodities directly. We further investigate how the risk-averse retailer conducts mean-variance financial hedging by purchasing consumption commodity futures contracts. We formulate the problem using a dynamic programming model and derive a

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Procurement Risk Mitigation for Rebar Using Commodity Futures

Zhou

Yang

2017

Proceedings of the Eleventh International Conference on Management Science and Engineering Management

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Coordinating operational policy with financial hedging for risk-averse firms

Cited by 15 publications

References 27 publications

Impawn rate optimisation in inventory financing: A canonical vine copula-based approach

Impawn rate optimisation in inventory financing: A canonical vine copula-based approach

Buy now and price later: Supply contracts with time-consistent mean–variance financial hedging

Procurement Risk Mitigation for Rebar Using Commodity Futures

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