Influences of risk-aversion behavior and purchasing option in a cross-border dual-channel supply chain

Considering the rapid development of cross-border e-commerce, this paper constructs a cross-border dual-channel supply chain with a supplier and a retailer in different countries. The supplier directly sells products to overseas market through an online channel and a retail channel. Since the supplier expands the overseas market and bears the potential risk of exchange rate volatility, the supplier is risk-averse. In the presence of exchange rate volatility, the risk-averse supplier decides whether to purchase an option to hedge against the risk of exchange rate volatility. Conditional value at risk is applied as a measure of the supplier's risk-averse behavior. To identify the conditions under which the risk-averse supplier should purchase an option, we analyze two scenarios: the benchmark model and the option model. By comparing the benchmark model with the option model, we show that if the option premium is lower than a threshold, the risk-averse supplier prefers to purchase an option, which also makes the retailer better off. Interestingly, when the supplier becomes less risk-averse, as the exchange rate volatility increases, both players benefit a higher utility in the option model. Finally, we verify the results' robustness using numerical analysis.