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Optimal Timing of Information Security Investment: A Real Options Approach

  • Ken-ichi Tatsumi
  • Makoto Goto
Conference paper

Abstract

This chapter applies real options analytic framework to firms' investment activity in information security technology and then a dynamic analysis of information security investment is explored by extending Gordon-Loeb (2002). The current research provides how firms have to respond to immediate or remote threat numerically. It shows that although positive drift of threat causes both larger and later investment expenditure, negative drift causes immediate investment and lower investment expenditure. The efficiency of vulnerability reduction technology encourages firms to invest earlier and induces cost reduction. To know the form of vulnerability is important because the effect of high vulnerability on timing and amount of the investment expenditure is mixed.

Keywords

Information Security Real Option High Vulnerability Optimal Investment Risk Free Interest Rate 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Springer Science+Business Media, LLC 2010

Authors and Affiliations

  1. 1.Faculty of EconomicsGakushuin UniversityTokyoJapan
  2. 2.Graduate School of Economics and Business AdministrationHokkaido UniversitySapporoJapan

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