IDEAS home Printed from https://ideas.repec.org/h/wsi/wschap/9789814407335_0005.html
   My bibliography  Save this book chapter

The Theory of Optimal Investment in Information Security and Adjustment Costs: An Impulse Control Approach

In: Recent Advances In Financial Engineering 2011

Author

Listed:
  • Makoto Goto

    (Graduate School of Economics and Business Administration, Hokkaido University, Kita 9, Nishi 7, Kita-ku, Sapporo 060-0809, Japan)

  • Ken-ichi Tatsumi

    (Faculty of Economics, Gakushuin University, Mejiro 1-5-1, Toshima-ku, Tokyo 171-8588, Japan)

Abstract

This paper applies the theory of real options and impulse control to information security investment and derives properties of an optimal investment rule. It also incorporates adjustment costs incurred whenever the level of the investment changes. We observe among others that if firm has opportunity of multiple investments, it behaves so cautiously that the timing is earlier and to invest more. Both adjustment costs and volatility of threat make interval of the investment longer, while vulnerability leads to shorter interval and therefore frequent investment.

Suggested Citation

  • Makoto Goto & Ken-ichi Tatsumi, 2012. "The Theory of Optimal Investment in Information Security and Adjustment Costs: An Impulse Control Approach," World Scientific Book Chapters, in: Akihiko Takahashi & Yukio Muromachi & Hidetaka Nakaoka (ed.), Recent Advances In Financial Engineering 2011, chapter 5, pages 73-96, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789814407335_0005
    as

    Download full text from publisher

    File URL: https://www.worldscientific.com/doi/pdf/10.1142/9789814407335_0005
    Download Restriction: Ebook Access is available upon purchase.
    File URL: https://www.worldscientific.com/doi/abs/10.1142/9789814407335_0005
    Download Restriction: Ebook Access is available upon purchase.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Goto, Makoto & Tatsumi, Ken-ichi, 2016. "Rational Theory of Information Security Battle: Economic Analysis of Preemptive Behavior," Discussion paper series. A 303, Graduate School of Economics and Business Administration, Hokkaido University.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:wschap:9789814407335_0005. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscientific.com/page/worldscibooks .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.