Option pricing for inventory management and control

We explore the use of option contracts as a means of managing and controlling inventories in a retail market. Specifically, merchants can buy option contracts on unsold inventories of retail goods in an effort to hedge, pool, or transfer risk. We propose a new kind of European put option on an inventory where the holder is allowed to freely adjust the original sale price of the underlying good throughout the contract period as a means of controlling demand. Assuming the retailer will chose the profit maximizing pricing policy, we can price the option accordingly.