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Using Financial Derivatives to Hedge Against Market Risks in IT Outsourcing Projects – a Quantitative Decision Model

Title data

Buhl, Hans Ulrich ; Fridgen, Gilbert ; König, Christian:
Using Financial Derivatives to Hedge Against Market Risks in IT Outsourcing Projects – a Quantitative Decision Model.
In: Journal of Decision Systems. Vol. 22 (2013) Issue 4 . - pp. 249-264.
ISSN 1246-0125
DOI: https://doi.org/10.1080/12460125.2013.834680

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Abstract in another language

Besides the project-inherent risk of an IT outsourcing project, related to the management of the project, other types of risk driven by the markets have not yet been addressed until now. Although financial derivatives are well known as a powerful tool for hedging market risk, there are no approaches to utilize this tool for risk management in IT outsourcing projects. We show a way to address two types of market risk threatening outsourcing success: insolvency of the project counterpart and a slump in prices of the counterpart’s stocks. This paper therefore provides a quantitative decision model to determine how much money should be spent on hedging these risks using financial derivatives. We discover that the lower the probability of damage the higher the degree of cheap hedging that should be applied. In contrast, other means of hedging should be considered when facing a rather high probability of damage, because financial hedging gets too expensive.

Further data

Item Type: Article in a journal
Refereed: Yes
Keywords: IT-outsourcing, market risks, hedging, decision model
Institutions of the University: Faculties
Faculties > Faculty of Law, Business and Economics
Faculties > Faculty of Law, Business and Economics > Department of Business Administration
Faculties > Faculty of Law, Business and Economics > Department of Business Administration > Professorship Business Informations Systems and sustainable IT management
Faculties > Faculty of Law, Business and Economics > Department of Business Administration > Professorship Business Informations Systems and sustainable IT management > Professorship Business Informations Systems and sustainable IT management- Univ.-Prof. Dr. Gilbert Fridgen
Research Institutions
Research Institutions > Research Centres > Forschungszentrum für Modellbildung und Simulation (MODUS)
Research Institutions > Affiliated Institutes
Research Institutions > Affiliated Institutes > Fraunhofer Project Group Business and Information Systems Engineering
Research Institutions > Affiliated Institutes > FIM Research Center Finance & Information Management
Research Institutions > Research Centres
Result of work at the UBT: No
DDC Subjects: 000 Computer Science, information, general works > 004 Computer science
300 Social sciences > 330 Economics
Date Deposited: 31 Mar 2015 12:28
Last Modified: 31 Aug 2018 09:58
URI: https://eref.uni-bayreuth.de/id/eprint/7857