Optimal timing of partial outsourcing decisions

Kurt Helmes, and Torsten Templin. "Optimal timing of partial outsourcing decisions." Mathematica Applicanda 42.1 (2014): null. <http://eudml.org/doc/292780>.

@article{KurtHelmes2014,
abstract = {This article combines a real options approach to the optimal timing of outsourcing decisions with a linear programming technique for solving one-dimensional optimal stopping problems. We adopt a partial outsourcing model proposed by Y. Moon (2010) which assumes profit  flows to follow a geometric Brownian motion and explicitly takes into account the benets and costs of all eorts which a firm spends on the project prior to the outsourcing date. The problem of deciding when to outsource and how much efort to spend is solved when the underlying profit  flows or index processes are modeled by general one-dimensional diffusions. Optimal outsourcing times are proved to be of threshold type, and sensitivity results regarding market volatility and other quantities are derived. The corresponding optimal stopping problems are reformulated in terms of finnite dimensional linear programs and nonlinear optimization problems. These reformulations are exploited to prove sensitivity results in a novel way. Specific  management recommendations are provided.},
author = {Kurt Helmes, Torsten Templin},
journal = {Mathematica Applicanda},
keywords = {Optimal stopping, Outsourcing, Mean-reverting processes, Sensitivity analysis, Linear programming},
language = {eng},
number = {1},
pages = {null},
title = {Optimal timing of partial outsourcing decisions},
url = {http://eudml.org/doc/292780},
volume = {42},
year = {2014},
}

TY - JOUR
AU - Kurt Helmes
AU - Torsten Templin
TI - Optimal timing of partial outsourcing decisions
JO - Mathematica Applicanda
PY - 2014
VL - 42
IS - 1
SP - null
AB - This article combines a real options approach to the optimal timing of outsourcing decisions with a linear programming technique for solving one-dimensional optimal stopping problems. We adopt a partial outsourcing model proposed by Y. Moon (2010) which assumes profit  flows to follow a geometric Brownian motion and explicitly takes into account the benets and costs of all eorts which a firm spends on the project prior to the outsourcing date. The problem of deciding when to outsource and how much efort to spend is solved when the underlying profit  flows or index processes are modeled by general one-dimensional diffusions. Optimal outsourcing times are proved to be of threshold type, and sensitivity results regarding market volatility and other quantities are derived. The corresponding optimal stopping problems are reformulated in terms of finnite dimensional linear programs and nonlinear optimization problems. These reformulations are exploited to prove sensitivity results in a novel way. Specific  management recommendations are provided.
LA - eng
KW - Optimal stopping, Outsourcing, Mean-reverting processes, Sensitivity analysis, Linear programming
UR - http://eudml.org/doc/292780
ER -