USING OPTIONS PRICING THEORY TO VALUE SAFETY & ERGONOMICS PROJECTS: A CASE STUDY

Luke Miller and Jennifer W. Kelber

Review of Business and Finance Studies, 2015, vol. 6, issue 2, 75-84

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.

Keywords: Capital Budgeting; Options Pricing; Case Study (search for similar items in EconPapers)
JEL-codes: G30 G31 G32 G39 (search for similar items in EconPapers)
Date: 2015
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