An Option-Based Operational Risk Management Model for Pandemics
Bibliographic record
Abstract
Abstract In this paper we employ the theory of real option pricing to address problems in the area of operational risk management. We develop a two-stage model to help firms determine the optimal suspension-reactivation triggers in the events of pandemics. In the first stage, we propose a regime-dependent epidemic model to simulate the spread of the virus, depending on whether the firm is active or inactive. In the second stage, we view the reactivation decision as a call option and the suspension decision as a put option, and use dynamic programming methods to obtain the optimal switching thresholds. Our method can be regarded as a quantitative implementation of the CDC’s instructions for pandemic preparation. We find that when they take the uncertainty of disease transmission into consideration, firms are more conservative about the decisions of suspension and reactivation. We also find that when firms incur switching costs, the suspension threshold increases with costs, whereas the reactivation threshold decreases with costs. By adopting disease control policies, firms can increase their values in both regimes.
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How this classification was reachedexpand
Full frame distilled prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.
Codex and Gemma teacher scores by category
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.001 | 0.000 |
| Meta-epidemiology (narrow) | 0.000 | 0.000 |
| Meta-epidemiology (broad) | 0.000 | 0.000 |
| Bibliometrics | 0.000 | 0.001 |
| Science and technology studies | 0.001 | 0.000 |
| Scholarly communication | 0.001 | 0.001 |
| Open science | 0.001 | 0.000 |
| Research integrity | 0.000 | 0.000 |
| Insufficient payload (model declined to judge) | 0.000 | 0.000 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one teacher head, not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".