Copyright © 2021 Fienics
Situation:
An international shipping consortium was negotiating with the government over providing the military the right to take over shipping lanes in the event of military conflict. They wanted to know how much to charge. They needed us to complete the entire project in two weeks.
Analysis:
We developed a "real-options" model to evaluate how much to charge based upon the perceived risk to the shipping consortium. We created a simulation to identify the probability of conflict and the potential cost to the consortium. Based upon the financial price of risk, we calculated the value of such a contract for the consortium.
Implications:
The consortium provided the analysis to the military and quickly negotiated an agreement.
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