Research on supply chain option buyback contract based on capital gains

Abstract

This article introduces option thinking in supply chain buyback contract and studies on how capital gains influence the supply chain operational decision making and system profits. With the aid of Lagrange's equation, it proves that only when executed price of option falls in some range that the expected profit of the retailer is the united concave function of order quantity and option order quantity and gives the parameter scope of each optimization order quantity and capital rate of return and its constraints. At last, through examples, it demonstrates that when satisfying retailer's constraints, the optimization order quantity considering the situation of capital gains is greater than the order quantity of option buyback contract while capital gains are not considered.