Coordination mechanism by option contract in the biomass supply chain organized by “Company and Farmer”

Abstract

This research mainly discussed some concrete details about how to make better use of the option contract in the case of biomass supply chain under “Company + Farmer” mode. Based on Stackelberg Game Theory this paper built a contract model, in which the company coordinated the farmer's production and the contract quantity. Moreover, the optimal option exercise price was determined, considering various market uncertainties such as market interest rate, spot price volatility and option period. Meanwhile, based on B-S model, combining the traditional option theory and market-based option theory together, an appropriate option strategy with a solely one pricing strategies solution was proposed. It can be concluded that this option contract will enhanced the overall profit of the supply chain effectively, achieving mutual benefit between the company and the peasant simultaneously.