Production planning with uncertain demands and real options

This paper proposes options based sales contracts for manufacturing enterprises to handle fluctuating demands. It presents a stochastic programming model for aggregate production planning with demands of different types such as uncertain forecasts, forward contracts and real options. Both call options by the buyers and put options by the enterprise are considered. The proposed procedure guides the selection of `call options´ among those offered and the quantities for new `put options´ along with a feasible production plan.