Managing Emergency Procurement Using Option Contract under Supply Disruption and Demand Uncertainty

Table 1

Notions and definitions.

Illustration
	Supplier’s production cost of per unit
	Retailer’s first ordering price per unit without option contract
	Option price per unit
	Option exercise price per unit
	Retail price per unit
	Supplier’s emergency production cost per unit
	Retailer’s emergency procurement price per unit
	Unit salvage value after sales season
	Disruption probability
	Supplier’s production quantity (decision variable)
	Retailer’s option ordering quantity (decision variable)
	The market demand is stochastic, which is a continuous stochastic variable, , whose probability density function and cumulative distribution function are f (·) and F(·), with mean value
	, denotes the profit function of the supplier and the retailer
	Denotes optimum