Mitigating supply chain risk: A real options approach

The purpose of this paper is to develop a framework for the quantification of the costs and benefits associated to these supply chain risk management strategies and of their potential impact on performance as well as on the risk profile of firms. To do this, we adopt a Real Options approach, where a real option is the "right but not the obligation" to choose a course of action and obtain an associated payoff. By using this approach, in this paper we develop a real options-based framework which models some of the most common supply chain risk management strategies in terms of real options, thus posing the base for the further evaluation of the costs and benefits associated to these strategies.