Option 1, I'm a fan of for faster affiliate recruitment ability. As you know, all things being equal, an affiliate will be more attracted to getting paid instantly vs waiting a week or a month or 6 weeks etc.
However, if I'm dealing with savvy marketers and established businesses only and not needing to cater to cash-strapped beginner affiliates, then option 3 gets my vote. It keeps all cashflow in-house to the business owner (where it should be). All revenue is properly tracked then. All refunds are handled in house. And the referring affiliate gets their payment on the weekly or monthly or whatever schedule that was stated in the aff agreement.