Hedging through Index-based Price Contracts in Commodity-based Supply Chains

•In a commodity-based supply chain, processors prefer to partially hedge their exposure to input price risk; the optimal hedge ratio has been characterized.•Pricing flexibility of the retailer has been introduced as the driving force for hedging through index-based price contracts under risk neutrality.•The entire supply chain strictly prefers cost-plus contract over any other index-based price contracts.•Sensitivity of the optimal hedge ratios to commodity and product market parameters has been investigated.