Multi-period Supply Contract With Temperature Dependent Demand and Price Uncertainty

This project proposes a method to create a supply contract for a buyer and a seller located in different countries and has a demand dependent on the temperature. The aim of this project is to value contract that maximizes the revenue of the company. The supply contract mainly deals with the exchange rate values and the temperature-dependent demand as parameters. The meanreverting process is used to model the exchange rate values. The Hull-White tree model is used here to depict the exchange rate. A newsvendor type model obtains the ordering quantity in each period. A dynamic programming approach is used to determine the expected value of the contract. A numerical analysis is done to experiment with the method.