Multiperiod ordering model with put option contracts under inflation

Abstract

This paper considers the rising price and the shrinking demand caused by the inflation. To manage these above risks, the firm has a chance to place two types of orders in each period, viz., the firm order and the put options order. This paper formulates a multiperiod ordering model, either without or with put option contracts. Based on stochastic dynamic programming, this paper studies the optimal ordering policy structure in each period and provides an approximation to evaluate the corresponding policy parameters. By taking the case without put option contracts as a benchmark, put option contracts are demonstrated to prompt the firm to enhance the service level and improve the performance.