Abstract.
We develop an analytical framework for the valuation of options contracts for physical delivery that enable risk-sharing between the trading partners. The spot market price risk, the buyer's demand risk and the seller's marginal cost risk, which are key to many industrial settings such as the chemical industry, are explicitly incorporated. Analytical expressions for the buyer's optimal reservation quantity and the seller's optimal tariff are derived and related to the risk management needs in the industry. The ensuing discussion shows how contingency contracts for physical delivery can complement financial derivative instruments within a company's risk management approach.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Spinler, S., Huchzermeier, A. & Kleindorfer, P. Risk hedging via options contracts for physical delivery. OR Spectrum 25, 379–395 (2003). https://doi.org/10.1007/s00291-003-0128-4
Issue Date:
DOI: https://doi.org/10.1007/s00291-003-0128-4