Real options in service investments: scenarios from defence Online publication date: Thu, 11-Dec-2008
by Tarik Driouchi, Paris Pennesi, Dharm Kapletia, Rachel Cuthbert
International Journal of Services Sciences (IJSSCI), Vol. 2, No. 1, 2009
Abstract: This paper addresses the theme of investment under uncertainty in services. We specifically apply principles of contingent-claims analysis to underline the value of flexibility, i.e., the real options, embedded in service level agreements (SLAs) and maintenance & repair investments in the context of aerospace and defence. We focus on path-dependent and complex contingent-claims, to show how the design of 'exotic' type options in service investments can provide valuable insurance policies against operational and financial risks for the customer, in addition to enhancing providers' incentives from superior service performance. For illustration, we highlight examples of barrier, lookback, compound, chooser and extendible options as flexibility clauses/alternatives for service provision in defence contracts.
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Services Sciences (IJSSCI):
Login with your Inderscience username and password:
Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.
If you still need assistance, please email subs@inderscience.com