Physical Sciences and Mathematics Commons^™

Asp -Pricing: A Black -Scholes Option Pricing Formulation, Chaitanya Singh

Doctoral Dissertations

The Applications Service Provider (ASP) arrangement has engendered a revolution in the area of corporate information technology (IT) by transforming software from a packaged off-the-shelf product to an on-line virtual service.

The focus of this study is to establish a sound mathematical foundation for evaluating software rental agreements (embedding exit flexibility) by incorporating a real options framework (based upon the Black-Scholes approach) into the traditional capital budgeting technique. The static discounted cash flow or net present value analysis may not adequately serve as a ‘barometer’ of outsourcing value due to its inherent weaknesses. On the other hand, the options approach …