Abstract: Option tools create a new model of supply chain collaboration which enables suppliers and retailers jointly to be liable for the risks of market uncertainty. Traditional supply chain researches assume that both parties are mainly risk neutral. However, different managers have different needs for risk in practice. Application of Conditional Value at Risk (CVaR) can weigh the scale of risk and reflect the risk appetite. The decision-making objective function is modified on the basis of the approach and a model of option contract in a two-level supply chain. The chain consisting of a single retailer and a single supplier is build under stochastic demands. Obtaining the optimal amount of the retailer's option by analyzing the models, the paper reveals that the risk attitude has a significant impact on the optimal amount of call options and revenue, that is, the higher degree of risk aversion, the smaller order volume and revenue. A numerical example is provided to verify the conclusions drawn in this paper.

Key words: Conditional Value at Risk (CVaR), options, risk appetite, supply chain