Supply chain network equilibrium with strategic financial hedging using futures

Zugang Liu, Jia Wang

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

In this paper, we develop a network equilibrium model for supply chain networks with strategic financial hedging. We consider multiple competing firms that purchase multiple materials and parts to manufacture their products. The supply chain firms’ procurement activities are exposed to commodity price risk and exchange rate risk. The firms can use futures contracts to hedge the risks. Our research studies the equilibrium of the entire network where each firm optimizes its own operation and hedging decisions. We use variational inequality theory to formulate the equilibrium model, and provide qualitative properties. We provide analytical results for a special case with duopolistic competition, and use simulations to study an oligopolistic case. The analytical and simulation studies reveals interesting managerial insights.

Original languageEnglish (US)
Pages (from-to)962-978
Number of pages17
JournalEuropean Journal of Operational Research
Volume272
Issue number3
DOIs
StatePublished - Feb 1 2019

All Science Journal Classification (ASJC) codes

  • Computer Science(all)
  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management

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