A practical implementation of stochastic programming: an application to the evaluation of option contracts in supply chains

Stochastic programming is a powerful analytical approach which permits the solving of sequential decision-making under uncertainty. Yet, it is not widely used, mainly because practitioners still find it difficult to handle and implement. In this paper we focus on tools to build such stochastic programming models. We show that algebraic modelling languages make it possible for users who are not professional mathematical programmers to formulate complex problems and have them solved by powerful commercial solvers. We illustrate our point in a case of option contracts in supply chain management.