Risk management for online auction sellers: Options approach to manage price and quantity related risks

In online auctions, sellers typically face two types of risks: 1) uncertainty regarding the success of an auction ("quantity related" risk), and, 2) uncertainty in the auction-ending price ("price related" risk). Prior literature has proposed measures to manage these risks, albeit individually rather than jointly. In this paper, we propose a risk management tool, drawn and developed from the concept of put options the enables sellers to manage both of these risks for online auction settings.