Combined Stochastic Process and Value at Risk: A Real-World Information System Decision Case

Liang-Chuan Wu; Liang-Hong Wu; Fan-Yun Pai

doi:10.3390/e22010047

Combined Stochastic Process and Value at Risk: A Real-World Information System Decision Case

Entropy (Basel). 2019 Dec 30;22(1):47. doi: 10.3390/e22010047.

Authors

Liang-Chuan Wu¹, Liang-Hong Wu², Fan-Yun Pai³

Affiliations

¹ Institute of Technology Management, National Chung Hsing University, 250 Kuo Kuang Rd., Taichung 402, Taiwan.
² Business School, University of Shanghai for Science and Technology, Shanghai 200093, China.
³ Department of Business Administration, National Changhua University of Education, Changhua 50007, Taiwan.

Abstract

In this study, we used a combined stochastic process and value-at-risk (VaR) method to examine an electronic commerce expansion decision. By modeling uncertain benefits as a stochastic process, maximum losses of alternative decisions were quantified and compared to help managers to make information system/information technology (IS/IT) project decisions. Our results, based on the maximum loss perspective, demonstrated that uncertainty plays a critical role in evaluating IS/IT projects. More importantly, the results illustrate that VaR serves as a useful tool in decision-making for managers to quantify the value of maximum possible loss and to help them reach decisions.

Keywords: information system; stochastic process; uncertainty; value at risk (VaR).