Exchange rate risk sharing model of transnational supply chain considering background risk

Abstract

By extending the single exchange rate risk in previous studies to a general additive and multiplicative background risk form, this paper proposes a game model including a retailer, a manufacturer and a supplier. Explicit expressions of the optimal decisions for the retailer, the manufacturer and the supplier are given, respectively. Furthermore, the impacts of different forms of risk on the risk-sharing behaviour of the node enterprises in the supply chain are discussed. It is found that, if there is only additive background risk, there is no risk-sharing behaviour between the retailer and the manufacturer. When multiplicative background risk exists, both retailers and manufacturers share the background risk and price risk. The risk sharing degree between retailers and manufacturers increases with the fluctuation of background risk factors, and the risk sharing degree between suppliers (retailers) and manufacturer decreases with the increase of price risk.