Pricing of American retail options

We continue our exploration in the use of option contracts as a means of managing and controlling inventories in a retail market. We propose a new class of American put option contracts on inventories of retail goods, where the retailer can exercise the option at any time during the contract period, thus requiring that the option writer purchase any unsold inventory at a specified strike price. However, to improve market efficiency this option contract allows the retailer to freely adjust the sale price of the underlying good throughout the contract period. As the retailer is expected to select an optimal pricing policy for the goods, the options can be priced accordingly.