Using real options to value losses from cyber attacks

When traditional assets are lost, the loss is typically considered to be the summation of the purchase price and the costs of labor and material used to put an asset into production, reduced by depreciation charges and insurance recoveries. With digital assets, traditional loss valuation fails to reflect the full loss to the company, as much of a digital asset's value is based on intangibles. Here, the argument is made that without a full valuation of digital assets, managers do not know the true loss they have experienced should the asset be lost. Consequently, optimal managerial decisions cannot be made. Real options analysis using binomial trees are suggested as a means to measure the full value of digital assets, and their resulting losses. [PUBLICATION ABSTRACT]