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Using analysis to influence strategic-decision making: option valuation at ECGD

Author

Listed:
  • D I Calvert

    (Export Credits Guarantee Department)

  • R Kaufman

    (Export Credits Guarantee Department)

Abstract

This case-oriented paper shows how an in-house OR group in a small Government Department (ECGD) influences decision-making by feeding technical analysis directly into strategic decision-making. It covers both the technical detail of the analysis and the OR process which led to implementation. The technical part of the paper describes how the forecast expected cost of giving a fixed interest rate hold to a borrower was estimated using an option valuation. The cost estimation is complicated by the context: ECGD is also providing a guarantee of loan repayment by the overseas borrower to a bank, and ECGD costs include a binary bank margin cost which depends on whether the fixed interest rate hold is taken up by the borrower. The remainder of the paper describes the way OR analysts worked with decision-makers and considers the implications for effective practice.

Suggested Citation

  • D I Calvert & R Kaufman, 2008. "Using analysis to influence strategic-decision making: option valuation at ECGD," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 59(2), pages 198-202, February.
    • Handle: RePEc:pal:jorsoc:v:59:y:2008:i:2:d:10.1057_palgrave.jors.2602545
    DOI: 10.1057/palgrave.jors.2602545
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    Cited by:

    1. F O'Brien, 2011. "Supporting the strategy process: a survey of UK OR/MS practitioners," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 62(5), pages 900-920, May.

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