Mixed contract on newsvendor problem with real option and continues demand

In this article, we study a newsvendor contracting framework based on real option under continuous stochastic demand. We consider a mixed contract in which the retailer is allowed to order a portion his needs and the rest of his requirement through real options. We develop a closed form solution for the problem. In this regard, we illustrate that the outcome of the mixed contract is advantageous in comparison with pure real option contract, or classic newsvendor contract.