An Outsourcing Decision-Making Model Based on Options Valuation Theory

Yan Ma; Chun Xiao Xia; Bao Quan Song; Yue Xian Zhang

doi:10.4028/www.scientific.net/AMR.204-210.617

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HomeAdvanced Materials ResearchAdvanced Materials Research Vols. 204-210An Outsourcing Decision-Making Model Based on...

An Outsourcing Decision-Making Model Based on Options Valuation Theory

Abstract:

The valuation of options is an important research topic of modern options pricing theories. In this paper, an outsourcing decision model is built based on options valuation theory. We classified the cost of outsourcing into three independent spheres including strategic, managing, and executive. Then, we quantified these notional costs by the means of options valuation. Furthermore, we get the boundary qualification of outsourcing in the framework of “cost-benefit” by comparing outsourcing’s general cost with its benefit on the point of numerical cost of risk. A numerical example is given to illustrate the feasibility of the decision-making model.