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Using Options Pricing Theory To Value Safety & Ergonomics Projects: A Case Study

Author

Listed:
  • Luke Miller
  • Jennifer W. Kelber

Abstract

This paper applies option pricing theory to value an investment in safety & ergonomics. Utilizing both traditional and perpetual call option frameworks, we quantify project value overlooked by traditional discounted cash flow techniques. In a case study format, it is shown that delaying investment allows the firm to reduce uncertainty associated with safety & ergonomic interventions; with increased costs of delaying encouraging speedier implementation.

Suggested Citation

  • Luke Miller & Jennifer W. Kelber, 2015. "Using Options Pricing Theory To Value Safety & Ergonomics Projects: A Case Study," Review of Business and Finance Studies, The Institute for Business and Finance Research, vol. 6(2), pages 75-84.
    • Handle: RePEc:ibf:rbfstu:v:6:y:2015:i:2:p:75-84
    as

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    References listed on IDEAS

    as
    1. Bertrand Quélin & Charlotte Krychowski, 2010. "Real Options and Strategic Investment Decisions: Can They Be of Use to Scholars?," Post-Print hal-00528395, HAL.
    2. Niven, Karen J. M., 2002. "A review of the application of health economics to health and safety in healthcare," Health Policy, Elsevier, vol. 61(3), pages 291-304, September.
    3. Palmer, Stephen & Smith, Peter C., 2000. "Incorporating option values into the economic evaluation of health care technologies," Journal of Health Economics, Elsevier, vol. 19(5), pages 755-766, September.
    4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    5. Alex Triantis & Adam Borison, 2001. "Real Options: State Of The Practice," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(2), pages 8-24, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Capital Budgeting; Options Pricing; Case Study;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G39 - Financial Economics - - Corporate Finance and Governance - - - Other

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